Shadowing Practice: 1. Introduction and Supply & Demand - Learn English Speaking with Video
Choose a practice mode
Each mode opens a full-screen practice room.
556 sentences
If sentences are too short or too long, click Edit to adjust them.
1
JOHN GRUBER, This is 14 .01.
2
I'm John Gruber, and this is microeconomics.
3
Today I want to cover three things.
4
I want to talk about the course details.
5
I want to talk about what is microeconomics, and then I'll start the substance of the course by talking about supply and demand.
6
A couple of the points about the course.
7
The course will have a distinct sort of policy angle to it.
8
I sort of do economic policy as government policy is my thing.
9
So I think it's what makes economics exciting.
10
And it sort of offers, I think, an interesting angle to understand why we're learning what we're learning.
11
I think sometimes in an intro class, it's sort of hard to understand why the heck you're doing things.
12
However, that's just sort of a slight flavor.
13
If you're really more interested in this, I teach a whole course called 1441.
14
I'm not teaching it this year but it'll be taught by a visitor in the spring,
15
Kristen Butcher from Wellesley, and I'll be teaching it next year, that dives much more into these policy issues.
16
So I'm going to use government policy as an organizing theme, but it won't be the dominant theme of the class.
17
Finally, three points about my teaching style.
18
I don't write everything in the board.
19
We're not in high school anymore.
20
You're actually responsible for what I say, not what I write.
21
Partly that's because my handwriting is brutal, as you can tell already.
22
So what that means is, please, please do not be afraid to ask me what the hell I just wrote on the board.
23
OK, there's no shame in that.
24
Don't just lean to your neighbor and say, what the hell is writing the board?
25
Like, ask me.
26
Because if you can't read it, I'm sure someone else can't read it.
27
So feel free to ask.
28
And in general, please feel free to engage with questions in this class.
29
The other point of my teaching style is I talk way too fast.
30
And the longer I go, there's a mathematical function, which is the longer I go without interruption, the faster I speak until I just spin off.
31
OK?
32
So basically, please ask questions.
33
If anything's not clear or you just want to ask a question about some related tangent or whatever, please feel free to do so.
34
You might think, how would that work in a class this big?
35
There's always way too few questions, even a class this big.
36
So never be afraid that it'll slow me down or whatever.
37
Ask a question.
38
We have plenty of time in the class.
39
And you'll be doing your classmates a favor, because it'll slow me down.
40
Finally, last point, I have this terrible tendency tendency to use the term guys in a gender neutral way.
41
So this class I like to see looks like it's a fairly healthy representation of both males and females.
42
When I say guys, I don't mean men.
43
I mean people.
44
I mean people.
45
So women don't take it personally.
46
Guys means economic agents.
47
It means people.
48
It doesn't mean men.
49
It's just a way, just a bad tendency.
50
Drives my wife crazy.
51
But I've decided better to just apologize up front than try to fix it throughout, which is impossible.
52
OK, so let's talk about what is microeconomics.
53
OK?
54
So fundamentally, microeconomics, how many people took AP high school econ?
55
OK.
56
How many people, for how many people was it taught really well?
57
OK.
58
That's about right.
59
That's why I did my high school online class.
60
That's the answer I wanted to hear.
61
OK.
62
So tell your friends still in high school who are taking high school econ, if your high school econ teacher isn't great,
63
tell them to go on edX and take the class and help out your friends still in high school.
64
OK, so what is microeconomics?
65
Microeconomics is the study of how individuals and firms make decisions in a world of scarcity.
66
Scarcity is what drives microeconomics.
67
OK?
68
Basically, what microeconomics is is a series of constrained optimization exercises.
69
where economic agents, be they firms or individuals, try to make themselves as well off as possible, given their constraints.
70
Yeah?
71
Will this cover your rationality?
72
I will, but not as much as I should.
73
Essentially, we have another course in the department called 1413, Behavioral Economics, which gets into that much more.
74
I will sprinkle it throughout, but not as much as I actually believe in it.
75
In other words, the way we think about economics is it's best to sort of get the basics down before
76
you start worrying about the deviations.
77
Find it better to climb the tree before you start going out in the branches.
78
OK, so basically, what this course is then about is it's about trade -offs.
79
It's about how do you, given that you're constrained, how do you trade off things to make yourself as well off as possible?
80
And behind this notion of trade -offs is going to be, I'll say about 100 times,
81
this is the most important thing in the course, so just ignore that.
82
But this is one of the most important things.
83
I'll say one of the most important things in the course is the notion of opportunity cost.
84
Opportunity cost is a very important concept that we teach.
85
So the first concept we teach,
86
which is that every action or every inaction has a cost and that you could have been doing something else instead.
87
So if you buy a shirt, you could have bought pants.
88
If you sit at home and watch TV, you could have been out working.
89
Everything you do has a next best alternative if you could have done instead.
90
And that is called the opportunity cost.
91
And that's a critical concept in economics.
92
And that is why, in some sense, we are called, referred to casually, as the dismal science.
93
Economics are referred to as the dismal science.
94
First of all, I'm flattered we're considered a science.
95
But we're called the dismal science because our whole point is that nothing is free.
96
There's always a trade -off.
97
There's always an opportunity cost.
98
Anything you do, you could be doing something else instead.
99
And your constraint optimization means you're going to have to pass up one thing to do another.
100
Now some may call it dismal, but as a former MIT undergraduate, I call it fun.
101
And this is why I think MIT is the perfect place to be teaching economics.
102
Because MIT engineering is all about constraint optimization.
103
That's what engineering is.
104
And economics is just the principles you learn in engineering applied in different contexts.
105
So if we think about the 2007 contest, that still exists with the robots?
106
2007?
107
Yeah.
108
The 2007 contest, those of you who know,
109
is a contest where you're given a limited set of materials and you have to build a robot that does some tasks,
110
like pushing ping pong balls off a table or something like that.
111
That's just constrained optimization.
112
It's got nothing to do with economics, but it's constrained optimization.
113
So just think of microeconomics as like engineering, but actually interesting.
114
So think of microeconomics as engineering, but instead of building something to push a ping pong ball off tables,
115
you actually build people's lives and businesses and understand the decisions that drive our economy.
116
So it's the same principles that you could think of for your engineering classes, but applied to people's lives.
117
And that's why, in fact, modern economics was born in this room, either this room or 26 -100, by Paul Samuelson in the 1940s and 50s,
118
who wrote the fundamental textbook that that gave birth to modern economics,
119
because he was here and applied the kind of engineering principles of MIT to actually develop the field of modern economics.
120
What we'll learn today was developed at MIT.
121
So it's a great place to be learning it.
122
Now, with that as background, any questions about that?
123
About what is microeconomics?
124
OK, with that as background, let's turn to the first model we'll talk about this semester, which is the supply and demand model.
125
supply and demand.
126
Now, the way we're going to proceed in this course is going to drive you crazy.
127
Because we're going to proceed by teaching very, as the very first question pointed out, by teaching very simplified models.
128
We're going to essentially, what is a model?
129
A model is technically description between any two or more economic variables or I need two or more variables.
130
But unlike the models you use in all your other classes, these aren't laws, by and large.
131
They're models.
132
So we don't have a relationship between energy and mass, which we can write down.
133
It's a law, and we're done.
134
We have models which are never 100 % true, but always pretty true, pretty being somewhere between 10 % and 95 % true.
135
So basically, the idea is to make a trade -off, we want to write down in our models a set of simplifying assumptions
136
that allow us with a relatively small set of steps to capture relatively broad phenomena.
137
So it's essentially a trade -off.
138
On the one hand, we'd like a model that captures as well as possible the phenomena in the real world, like equals mc squared.
139
But we want to do so in the most tractable possible way
140
so that we can teach it from first principles and don't need an hour to teach every single insight we have.
141
So basically, in economics, we tend to resolve that by erring on the side of tractability.
142
That is why I can teach you the entire field of microeconomics, which is really sort of macro is kind of a fun application.
143
Micro is really economics.
144
I can teach you the entire field of microeconomics in a semester
145
because we're going to make a whole huge set of simplifying assumptions to make things tractable.
146
But the key thing is that you will be amazed at what these models will be able to do.
147
With a fairly simple set of models, we will be able to offer insights and explain a whole huge variety of phenomena.
148
Never perfectly, but always pretty well.
149
Generally pretty well.
150
OK?
151
And so that is essentially the trade -off we're going to try to do this semester.
152
So the line I like is the statistician, George Box, said that all models are wrong, but some are useful.
153
Now, obviously, it doesn't apply to models in the hard sciences, but in the social sciences, that's true.
154
And basically, I'm going to write down a set of models like that.
155
Now, with every model I write down, my goal is to have you understand it at three levels models.
156
The first and most important level is the intuitive level.
157
The level which you sort of understand, I call it passing the mom test.
158
You can go home and explain it to your mom at Thanksgiving or at the end of the semester.
159
No offense to dads.
160
Just call it the mom test.
161
So basically, that's the intuitive level.
162
You really understand it a way that you could explain it.
163
The second is graphical.
164
Most of our models here will develop in a graphical framework work, using x, y graphs, that were really weak in economics,
165
we think delivers a lot of shorthand power.
166
And the third is mathematical.
167
The mathematical is probably the least important, but it's the easiest to test you on.
168
So we're going to need to know things mathematically as well.
169
OK?
170
So let's start by considering the supply and demand model by using the famous example brought up by Adam Smith.
171
Adam Smith is sort of considered the father of economics.
172
Paul Samuels is the father of modern economics.
173
Adam Smith's the father of all economics.
174
His 1776 book, The Wealth of Nations, did an incredible job of actually laying out the entire core of the economics field.
175
No math, just words, but kind of he just nailed it.
176
And he started, one of his most famous examples was the water diamond paradox.
177
He said, think about water and diamonds.
178
He said, start with water.
179
Nothing is more important for life than water.
180
It's the building block of all of life.
181
Even when we look for life on other planets, we always start by looking for water.
182
Now think of diamonds, one of the more frivolous things you can buy,
183
certainly irrelevant to leading a successful or happy or productive life or any life.
184
Yet, for most of us, water is free and diamonds are super expensive.
185
How can this be, Adam Smith asked.
186
Well, the answer he posed is that what I first described was just demand.
187
That is, we demand lots of water.
188
We demand fewer diamonds.
189
But we have to match that with the concept of supply.
190
And the supply of water is almost infinite, while the supply of diamonds, maybe not naturally.
191
Maybe it's through decisions of various businesses.
192
But it's somewhat limited.
193
So basically, what he developed is what we call the supply and demand scissors.
194
that you can't just think of supply or demand in isolation.
195
You have to put them together if you want to explain the real world phenomenon we see,
196
like the fact that water is cheap and diamonds are expensive.
197
So let's talk about an example.
198
So there's one graph that was handed out in the back, which is let's talk about the market for roses.
199
So in the market for roses, we have a demand curve and a supply curve.
200
So what we have here, this is the kind of xy graph we're going to look at all throughout the semester.
201
On the x -axis is the quantity of roses.
202
On the y -axis is the price of roses.
203
The blue downward sloping line is the demand curve.
204
Now, what I'm going to do here, I'm Just give me an overview.
205
We are going over the next five or six lectures, dive into where this demand curve comes from.
206
We'll go to first principles and build it back up.
207
But for now, we need to know about demand curve is it simply represents the relationship
208
between the price of a good and how much people want it.
209
Therefore, we assume it is downward sloping.
210
At higher prices, people want less of the good.
211
And we'll derive where that comes from shortly, starting next lecture.
212
But for now, I think it's pretty intuitive that if the price of roses is higher, people want fewer of them.
213
And that's why it's downward sloping.
214
OK?
215
That basically, as the price of roses goes up, people want fewer roses.
216
The yellow curve is the supply curve.
217
Now after we've derived the demand curve, we'll then go and spend about 12 lectures deriving the supply curve.
218
That's a bit harder.
219
But once again, we'll start from first principles and build it up.
220
For now, you just need to know is that's how much firms are willing to supply given the price.
221
So basically, as the price goes up, firms want to produce more roses.
222
The higher price means you make more money, so you want to produce more of them.
223
This is slightly less intuitive than demand, but we'll derive it and explain how it can be.
224
But for now, just go with the basic intuition that if you're making something, and you can sell it in the market for a higher price,
225
you're going to want to make more of it.
226
OK?
227
And that leads to the upward sloping supply curve.
228
Where the points meet is the market equilibrium.
229
Where supply and demand meets is the market equilibrium.
230
OK?
231
That is the point where both consumers and producers are happy to make a transaction.
232
Consumers are happy because they are on their demand curve is the 0 .600, is the 0 .3 dollars and 600 roses.
233
That is, they are willing to buy 600 rows at $3.
234
Producers are happy because on their supply curve is the same point.
235
They are willing to supply 600 rows at $3.
236
That is the one point where consumers are happy and producers are happy.
237
Therefore, it's the equilibrium, highly non -technical.
238
But that's the basic intuition.
239
The point at which they're both willing to make that transaction, the point at which they're both satisfied with that transaction is the equilibrium,
240
which in this case
241
This case is $3 per rose and 600 roses.
242
Now, this raises lots of questions.
243
Where do the curves come from?
244
How does equilibrium get achieved?
245
Why the heck do we give roses?
246
These are a bunch of questions.
247
We will come to all these questions over the next set of lectures.
248
But the basic thing is to understand this intuition of Adam Smith's supply and demand model.
249
OK?
250
Questions about that?
251
OK.
252
OK, now, this model also raises another important distinction that we'll focus on this semester, and it's easy to get mixed up.
253
So I want you to, if you're ever unclear, I want you to ask me about it.
254
And that's the distinction between positive versus normative analyses, positive versus normative.
255
Positive analyses is the study of the way things are, while normative analyses is the study of the way things should be.
256
Positive analysis is the study of the way things are, while normative analysis is the study of the way things should be.
257
Let me give you a great example, which is eBay auctions.
258
Auctions are a terrific example.
259
They're like the textbook example of the competitive market.
260
You can see it in your head.
261
Demand comes from a bunch of people going on and bidding.
262
People who want it more bid more.
263
So you actually get a demand curve.
264
The higher the price, the fewer people you're getting to bid.
265
Supply is how many units of it are for sale on eBay.
266
You bid until those two meet.
267
And then you have a market equilibrium at that bidded price.
268
Now, one example of an eBay auction that got a lot of attention a number of years ago, early in the days of eBay,
269
was someone offered their kidney for auction.
270
They said, look, I got two kidneys.
271
You only need one to live.
272
There are people out there who need a kidney.
273
I'm putting my kidney on eBay for auction.
274
And what happened, bidding went nuts.
275
It started at $25 ,000.
276
It climbed to $5 million before the auction was shut down.
277
And eBay decided they wouldn't allow you to sell your body on eBay, bodily parts on eBay.
278
OK?
279
OK?
280
So this raises two questions.
281
The first is the positive question.
282
Why did the price go so high?
283
So what's the answer to that?
284
What's the answer to the positive question?
285
Somebody wants to be kidney.
286
OK.
287
Good answer, but let's raise hands and give answers.
288
That's part of it.
289
Yeah?
290
Low supply, high demand.
291
Demand is incredibly high, because I die without it.
292
Supply is low, because not a lot of us are willing to sell their kidneys on eBay.
293
OK?
294
OK?
295
So low supply, high demand led to a high price.
296
Adam Smith at work.
297
That's the positive analysis.
298
OK?
299
But then there's the normative question, which is, should you be allowed to sell your kidneys on eBay?
300
That's the normative question.
301
The positive question is, what happens if you do?
302
The normative question is, should you?
303
Now, the standard economics answer to start it would be, of course you should.
304
We're in a world where thousands of people die every year because there's a waiting list for a kidney transplant.
305
And these are people who would happily pay a lot of money to stay alive, I presume.
306
Meanwhile, there's hundreds of millions of people walking around with two kidneys who only need one.
307
And many of these people are poor, or, and lives could be changed by being paid a million dollars for their kidney,
308
and might be happy to take the risk that one kidney will be fine, as it is for most everyone for most of their life,
309
in return for having the life -changing payment from a stranger.
310
So economists would say, look, here's a transaction that makes both parties better off.
311
The person who gets the kidney gets to stay alive, and they are willing to pay a huge amount for that.
312
The person who sells the kidney in most probability is fine, because almost all of us can make it through life fine with one kidney,
313
and can get a life -changing amount of money that could allow them to pursue their dreams in various ways.
314
So that's the standard argument would be, yeah, you should be able to sell your kidneys on eBay.
315
So the question is, why not?
316
Why would we want to stop this transaction?
317
What are the counter arguments to that?
318
Let's raise their hand.
319
Yeah.
320
Potentially, I think maybe the issue was because of eBay, there's no way to regulate it.
321
Or you don't necessarily know people could be selling fake kidneys, per se.
322
Right.
323
So the first type of problem comes out of the category we call market failures.
324
Market failures are reasons why the market doesn't work in the wonderful way economists like to think it should.
325
So for example, this answer puts up that could be the problem of fraud.
326
People might not be able to tell if they're getting a legit kidney or not.
327
There could be the example of imperfect information.
328
Do you know what the odds are that you can spend the rest of your life with only one kidney?
329
I don't either.
330
We ought to know that before we start selling our kidneys.
331
There could be imperfect information.
332
These are the kinds of, this is one type of problem, which is the market may fail.
333
Yeah?
334
The current system also helps people who are poor and have failed kidney,
335
and which are people who would be completely screwed by the water in that post -discomptive.
336
A second problem is what we call equity or fairness.
337
Equity or fairness, which is we would end up with a world where only rich people would get kidneys.
338
Currently, there's a bunch of voluntary donors and people who are in accidents who have kidneys left over.
339
And those go to people on the base of where they are on a waiting list.
340
It's actually a prioritized waiting list.
341
It's kind of a cool one of my colleagues, Nikhil Agarwal.
342
If you think about it, I'll talk a lot this semester about the imperialistic view of economics, all the cool things we can study.
343
So he actually uses economic models to study the optimal way to allocate organs to individuals.
344
Right now, it's just done based on a waiting list.
345
But it may be that someone further down the waiting list needs it more than someone higher up the waiting list,
346
because they're more critical or whatever.
347
So there's various often ways to allocate.
348
But certainly, often the way to allocate wouldn't be the rich guy gets it first.
349
That would be unlikely to be what society would necessarily want.
350
So there's an equity concern with that.
351
What else?
352
What other?
353
Yeah?
354
You might have a situation early.
355
Since you know you can make money off of selling kidneys and you take advantage of people, it's very bad for kidneys.
356
GARY GENSLER - Right.
357
So there's sort of a third.
358
It's related to fraud.
359
But there's sort of a third class of failures that gets into the question about behavioral economics that was raised earlier,
360
which we can just call sort of behavioral failure.
361
Behavioral, it's called behavioral economics, for want of a better term, which is essentially, people don't always make decisions in the perfectly rational,
362
logical way we will model them as doing so this semester.
363
People make mistakes.
364
That's a word we hate using economics.
365
We hate saying mistakes.
366
Ooh, boo, mistakes.
367
Nobody makes mistakes.
368
We're all perfect little economic beings.
369
But we know that's not true.
370
Increasingly, over the past several decades, economists have started incorporating insights from psychology into our models.
371
To not just say people make mistakes, that's a lackadaisical, but to rigorously model the nature of those mistakes
372
and understand how mistakes can actually happen due to various cognitive biases and other things.
373
In this world, you can imagine people could make mistakes.
374
They could not really sit down and quite understand what they're doing.
375
And they could have selling their kidney when it's really not in their own long -term interest.
376
Yeah?
377
Could an example be like, if there's a family that's in extreme poverty, even though they only have one kidney,
378
they might sell the other one just to give them more money for the family, per se?
379
Well, I mean, in some sense, that would be, once again, if we took this factor out,
380
if the market works well with its own behavioral effects, we'd say, well, you know what?
381
That's their decision.
382
You know, if they otherwise they starve, who are you to say?
383
OK.
384
But once you choose this, say, well, wait a second.
385
Maybe they're not evaluating the trade -offs correctly.
386
Even if there's no fraud, even if there's perfect information, they may not know how to process that information correctly.
387
OK.
388
But that is not standard economics.
389
That's not what we'll spend a lot of time on this semester.
390
But it's obviously realistic.
391
OK?
392
So those are a bunch of good comments, great comments.
393
And then, yeah?
394
Also in the elastic demand, such that people will always need kidneys for - GARY GENSLER - That won't turn out to be a problem.
395
That doesn't turn out to be a problem.
396
OK, and we'll come back.
397
That's a great comeback.
398
We'll talk about the shape of demand curves.
399
We want to return to that question in a few lectures, but that doesn't actually cause a problem.
400
It's just that's more of a positive thing about why the price is so high.
401
But it's not a normative issue about whether you should allow it or not.
402
OK?
403
OK?
404
So basically, these are exactly, this isn't, to me, honestly, I spend my life thinking a lot about these things.
405
I think these are really interesting issues.
406
But you can't get to the normative issues without the positive analysis.
407
You need to do the positive analysis, you need to understand the economic framework before you can start jumping and drawing conclusions.
408
That's no fun.
409
We all want to jump to draw conclusions and saying, this should happen, this shouldn't happen.
410
You can't do that.
411
We have to be disciplined.
412
We have to start with the fundamental economic framework.
413
OK?
414
OK?
415
And basically, the bottom line, you know, I said I'll teach this course with a policy bent.
416
But you have to recognize that economics at its core is a right wing science.
417
Economics at its core is all about how the market knows best, OK?
418
And that basically governments only mess things up.
419
That's sort of the basic, a lot of what we'll learn this semester.
420
As the semester goes on, we'll talk about what's wrong with that view and how governments can improve things.
421
Indeed, I teach a whole course about the proper role of of government and economy.
422
But the standard of economics is the market knows best.
423
And that leads us to the last thing I want to talk about, which is basically, how freely should an economy function?
424
Let's step back to the giant picture.
425
Let's step back from a market for roses to the entire economy.
426
How freely should an economy function?
427
We have what's known as a capitalistic economy.
428
In a capitalistic economy, firms and individuals decide what to produce and consume, may be subject to some rules of the road set by the government.
429
There's some minimal rules of the road to try to avoid fraud or misinformation.
430
But otherwise, we let the dice roll.
431
Firms and consumers decide what to do.
432
Now, this has led to tremendous growth.
433
America was not a wealthy nation.
434
It was not a very wealthy nation 100 years ago, 150 years ago.
435
It's led to tremendous growth where we are now still in the most powerful and wealthiest nation in the world,
436
largely driven by the capitalistic nature of our economy.
437
On the other hand, we are a nation with tremendous inequality.
438
We are by far the most unequal major nation in the world.
439
The top 1 % of Americans has a much higher share
440
of our income than in any other large country in the world, any other large developed country in the world.
441
The bottom 99 % has less of our income corresponding than anywhere else.
442
So it's led to major inequality.
443
And it's led to other problems.
444
It turns out that the government can't appropriately set the rules of the road to avoid things like fraud, as we saw with Enron,
445
if you remember back to that, or a lot of what happened during the financial meltdown.
446
It turns out it's hard to get people perfect information, et cetera.
447
So we've seen the problems.
448
We've grown very wealthy as a nation.
449
We've introduced a whole set of problems through this system.
450
Now, the other extreme is what's called the command economy.
451
Rather than a capitalist economy, it's what's called the command economy.
452
In this case, the government makes all the production and consumption decisions.
453
The government doesn't just set the rules of the road.
454
The government owns the road.
455
The government says we're going to produce this many cars this year, and people can get them in some way.
456
It could be a lottery, it could be waiting in line.
457
However, we decide to allocate them.
458
We're not going to let the market allocate them.
459
We, the government, will allocate them.
460
We'll allocate how many get produced and who gets them.
461
And this was the model of the Soviet Union that I grew up with.
462
This was the pre -1989 Soviet Union.
463
The government decided how many shirts, cars, TVs, everything.
464
It's sort of bizarre to think about.
465
Literally everything, the government decided how much to produce.
466
And by and large, the government decided who got it partly through corruption.
467
That is, the party members, party leaders got it first.
468
and often just through waiting in line for the remaining application.
469
Now, in theory, this ensured equity by making sure that everybody shot a thing.
470
In practice, it didn't work well at all.
471
And actually was what dragged down the collapse of the old
472
Soviet economy, was that the command model simply doesn't work.
473
Partly, there's just too many opportunities for corruption.
474
When the government controls everything, That means there's no checks and balances on the opportunity for enormous corruption.
475
The capitalist economy puts some natural checks and balances on that.
476
And partly because it turns out that it's hard to control human nature.
477
And Adam Smith had it right.
478
Adam Smith talks about the invisible hand of the capitalist economy.
479
The invisible hand is basically the notion
480
that the capitalist economy will manage to distribute things roughly in proportion to what people want.
481
And that's where folks want to be.
482
Folks who want a certain kind of car are going to want to get to that kind of car.
483
And if the government has it wrong, they're going to get upset, and it's going to lead to a less functional economy. So basically,
484
Adam Smith's view is that the invisible hand view is
485
that consumers and firms serving serving their own best interest will do what is best for society.
486
So the fundamental core of the capitalistic view is the consumers and firms serving their own best interest
487
will do what ends up being best for society.
488
And that's essentially the model we'll learn to start in this course.
489
Yeah?
490
In that definition, are we defining best for society as in everybody has the most money,
491
or everyone has the best health or the best income living?
492
What is best for society?
493
GARY GENSLER - Great, great question.
494
We're going to spend a lot of the semester talking about that.
495
For now, we're going to find best for society as the most stuff gets produced and consumed.
496
That's how we're going to find it.
497
Obviously, you've raised a set of issues about what about pollution, what about health, et cetera.
498
We're going to come to those.
499
But for the first 2 thirds of the course, best for society means what we're going to call maximum surplus,
500
which which is the most stuff gets produced at people value.
501
So that's how we're going to do it.
502
And in his view, the visual hand does that.
503
And by and large, it's a very helpful framework to turn to.
504
However, it can lead to outcomes that are not very fair.
505
So the way we're going to proceed in this course
506
is we're going to start by talking about how Adam Smith's magic works.
507
How does the magic happen?
508
How does individuals and firms act in their own self -interest
509
without caring about anybody else end up yielding the largest possible productive economy?
510
How does that happen?
511
And we're going to talk about that.
512
We'll start with demand, which is how do consumers decide what they want given their resources.
513
We'll talk about the principle of utility maximization, the idea that I have utility function, that I can mathematically write down what I want.
514
I'll have a budget constraint, which is the resource I have, and then we'll do constrained optimization.
515
We'll say, give them what I want and the resource I have.
516
What decisions do I make?
517
Boom, we get the demand curve.
518
Then we'll turn to supply.
519
And we'll talk about how do firms decide what to produce.
520
That's much more complicated, because firms have to decide what inputs to use and what outputs to produce.
521
And we'll talk about how firms can operate in very different markets.
522
There's a competitive market that Adam Smith envisioned.
523
But that doesn't always work.
524
Sometimes we get monopoly markets, where one firm dominates.
525
And you can actually have outcomes which aren't the best possible outcome, even with the invisible hand.
526
So we'll talk about different kinds of markets.
527
Then we'll put it together to get market equilibrium and talk about sort of Smith's principles.
528
And then from there, we'll talk about how it breaks down in reality,
529
different changes in reality, how there are various market failures that can get in the way.
530
Why we have to care about equity and what implications that has, about behavioral economics, about a set of other factors.
531
So that's basically how we're going to proceed this semester.
532
As I said, the lectures are important, but the recitations are as well.
533
Once we're sort of in steady state,
534
the recitations will be about half new material and half working through problems to help you prepare for the next problem set.
535
So the problem sets are going to work is the problem set that's assigned
536
will cover material that's taught up to that date.
537
So for example, problem set one is going to be assigned next Friday.
538
That will cover everything you've learned up through next Wednesday.
539
Therefore, in section on next Friday, we'll do a practice problem, which you should understand because it'll cover things we've taught in class.
540
And it'll prepare you for the problem set.
541
And we'll do that every week.
542
That about half the sections.
543
The other half of the section will be new material.
544
This Friday, this section on Friday, is all new material.
545
What we're doing Friday is cover the mathematics.
546
I don't like doing math.
547
I always get it wrong.
548
So I leave math for the TAs who are smarter than I am.
549
So this Friday, we're doing the mathematics of supply and demand and how you take the intuition here
550
and the simple graphics and actually turn it into mathematical representations, which is what you need for the problem sets.
551
That this Friday, then we'll come back on Monday and start talking about what's underneath the demand curve.
552
All right?
553
Any other questions?
554
OK.
555
I'll see you on Monday.
556
Thank you.
Download App
Everything you need to speak fluently
AI PronunciationScore every sentence
IPA PracticeMaster every sound
VocabularyBuild your word bank
Vocab GameLearn while playing
Same Channel
C12
11. Introduction to Machine Learning
Daily ConversationUniversity Students
C1Lec 1 | MIT 18.06 Linear Algebra, Spring 2005
TOEFL PrepCambridge Exam PrepUniversity Students
C28
Independence, Basis, and Dimension
University Students
C15
Big Picture: Derivatives
Cambridge Exam PrepUniversity Students
C12. Data Structures and Dynamic Arrays
Daily ConversationUniversity Students
C1Lec 1: Introduction to Principles of Microeconomics and Supply & Demand
TOEFL PrepBusiness EnglishUniversity Students
FOR YOU
Recommend Video
B21
425 sentences
NEW- Micro Unit 1 Summary- Basic Economic Concepts
Daily ConversationHigh School StudentsUniversity Students
C11
154 sentences
Distributed Systems 1.1: Introduction
Daily ConversationUniversity Students
C11
102 sentences
Module 1: What is Supply Chain Management? (ASU-WPC-SCM) - ASU's W. P. Carey School
Daily ConversationUniversity Students
C11
108 sentences
LTEC 782: Design-Based Research in Education (Session 01)
Daily ConversationUniversity Students
C12
478 sentences
Stanford MS&E435 Economics of the AI Supercycle | Spring 2026 | Economics of Generative AI
Daily ConversationUniversity Students
C12
57 sentences
Cambridge 10 Test 4 Section 4 Listening
Daily ConversationUniversity Students
C1134 sentences
What's all the Yellen About? Monetary Policy and the Federal Reserve: Crash Course Economics #10
Daily ConversationUniversity Students
C1287 sentences
Differential equations, a tourist's guide | DE1
Daily ConversationUniversity Students
C11
338 sentences
1. Introduction: What is Political Philosophy?
Daily ConversationUniversity Students
C12
56 sentences
Phonetics and Phonology: Introduction
Daily ConversationUniversity Students
C12
230 sentences
The Liberalism to Fascism Pipeline (Neoliberalism Explained)
Daily ConversationUniversity StudentsWorking Adults
C12
444 sentences
INTRODUCTION INTO HUMAN RESOURCES MANAGEMENT - LECTURE 01
Daily ConversationUniversity Students
Vocabulary and speaking notes for this lesson
This speaking lesson is built on the video “1. Introduction and Supply & Demand”. The speaker keeps coming back to these words: economic, demand, model, kidney, supply. This video has 555 sentences and 6045 words to shadow. The speech runs for 34:46. The speaker talks at a natural 174 words per minute, close to everyday conversation. 86% of the words are among the 3,000 most common in English; the rest is worth studying before you start.
Key vocabulary in this video
15 words from the video worth learning, with pronunciation and meaning:
| Word | Pronunciation | Meaning |
|---|---|---|
| economics noun | /ˌiːkəˈnɒmɪks/ | The study of resource and wealth allocation, consumption, and distribution, of capital and investment, and of management of the factors of production. |
| kidney noun | /ˈkɪdni/ | An organ in the body that filters the blood, producing urine. |
| curve noun | /kɚv/ | A bend, such as in a road. |
| semester noun | /sɪˈmɛstɚ/ | Half of a school year (US) or academic year such as autumn or spring semester. |
| principle noun | /ˈpɹɪn.sɪ.pəl/ | A fundamental assumption, fundamental law or guiding belief. |
| diamond noun | /ˈdaɪ.ə.mənd/ | A glimmering glass-like mineral that is an allotrope of carbon in which each atom is surrounded by four others in the form of a tetrahedron. |
| behavioral adjective | /bɪˈheɪvjəɹəl/ | Of or relating to behavior. |
| equilibrium noun | /ɛkwɪˈlɪbɹɪəm/ | The condition of a system in which competing influences are balanced, resulting in no net change. |
| essentially adverb | /ɪˈsɛnʃəli/ | In essence: by nature. |
| auction noun | /ˈɔkʃən/ | A public event where goods or property are sold to the highest bidder. |
| lecture noun | /ˈlɛk.t͡ʃə/ | A spoken lesson or exposition, usually delivered to a group. |
| optimization noun | /ˌɑptəmaɪˈzeɪʃən/ | The design and operation of a system or process to make it as good as possible in some defined sense. |
| fraud noun | /ˈfɹɔːd/ | The crime of stealing or otherwise illegally obtaining money by use of deception tactics. |
| equity noun | /ˈɛk.wɪ.ti/ | Fairness, impartiality, or justice as determined in light of "natural law" or "natural right". |
| transaction noun | /tɹænˈzækʃən/ | The act of conducting or carrying out (business, negotiations, plans). |
Phrasal verbs you will hear
| Word | Meaning |
|---|---|
| write down verb | To produce or set (something) down in writing; to record something. |
| turn out verb | To end up; to result. |
| end up verb | To bring to a conclusion. |
| go up verb | To move upwards. |
| back up verb | To move backwards, especially for a vehicle to do so. |
| bring up verb | To mention. |
| come back verb | To return to a place. |
| drag down verb | To cause (other people or another person) to suffer the same fate, or to feel the same negative mood. |
Sentences worth repeating
Short, complete lines from the video that you can reuse in everyday conversation:
- Will this cover your rationality?
- We're going to essentially, what is a model?
- Why the heck do we give roses?
- The positive question is, what happens if you do?
- The normative question is, should you?
Grammar in this video
The structures the speaker uses most, with the exact words from the video:
| Structure | In the video |
|---|---|
| Present perfect have/has + past participle — a past action that still matters now | I've decided · we've derived · have failed |
| Passive voice be + past participle — the focus is on what happens, not who does it | be taught · is called · are called |
| Relative clauses who / which + clause — extra information about a person or thing | function, which is · throughout, which is · semester, which is |
Pronunciation to watch
The speaker uses 144 contractions and reduced forms, such as we're, we'll, don't. Say them the short way, as you hear them.
- The “th” sounds: mathematics /mæθ(.ə)ˈmæt.ɪks/, mathematical /ˌmæθ(.ə)ˈmæt.ɪ.kəl/, wealthy /ˈwɛl.θi/, underneath /ˌʌndɚˈniθ/
- The “sh” and “zh” sounds: essentially /ɪˈsɛnʃəli/, auction /ˈɔkʃən/, optimization /ˌɑptəmaɪˈzeɪʃən/, transaction /tɹænˈzækʃən/, intuition /ˌɪn.tjuːˈɪʃ.ən/
- Long words — get the stress right: economics /ˌiːkəˈnɒmɪks/, behavioral /bɪˈheɪvjəɹəl/, equilibrium /ɛkwɪˈlɪbɹɪəm/, essentially /ɪˈsɛnʃəli/, optimization /ˌɑptəmaɪˈzeɪʃən/
How to practise with this video
- Listen to the whole video once without speaking and note the words you do not know.
- Start at 0.75× speed, shadow it sentence by sentence, then go back to normal speed once it feels easy.
- Record yourself and compare with the original, paying attention to words like economics, kidney, curve.
What is the Shadowing Technique?
Shadowing is a science-backed language learning technique originally developed for professional interpreter training and popularized by polyglot Dr. Alexander Arguelles. The method is simple but powerful: you listen to native English audio and immediately repeat it out loud — like a shadow following the speaker with just a 1–2 second delay. Unlike passive listening or grammar drills, shadowing forces your brain and mouth muscles to simultaneously process and reproduce real speech patterns. Research shows it significantly improves pronunciation accuracy, intonation, rhythm, connected speech, listening comprehension, and speaking fluency — making it one of the most effective methods for IELTS Speaking preparation and real-world English communication.