August 28, 2000
Lecture One
Introduction

Review syllabus
Levels of learning
Reading assignments and format of the class
Course goals
Course policies
                          Exams and quizzes
                          Writing assignment
                          Experiment beginning Wednesday (See topic one)
                          Research participation
                          Academic integrity
                          Disability.

Democracy as a standard for desirable government

Where might democracy (or other governments) go astray?

1. violations of individual or minority rights
2. the power of special interests or factions
3. the agency problem, as in principal-agent relations
4. misguided preferences and unanticipated consequences.
A tree of social and political institutions:
Types of social institutions
Types of government
Types of democracy
Types of representative government.
August 30, 2000
Lecture Two
Markets

The resurgence of markets in the late 20th century

The decline and fall of planned, command economies
Disenchantment with public ownership in mixed economies:
the rise of privatization and deregulation
The association of political and economic freedom: freedom to buy, sell, and set up a business
as well as to express your opinions and vote Supply and demand experiment Check sample workbook on supply and demand at
http://zuni.hss.cmu.edu/econu.html Markets are a social institution.
They can determine the allocation of resources.
They take individual characteristics and information,
such as buyer values and seller costs ..
… and aggregate them into a new distribution.
Markets can work well and
Maximize profits
Achieve Pareto Optimality
(Pareto optimality is a situation or distribution in which it is impossible to make one person better off without making at least one other person worse off.)

But markets can also fail:

1. by failing to provide optimal amounts of collective goods such as national defense
2. by providing externalities such as air pollution
3. by not having sufficient competition, with monopolies deciding price and supply
4. by not having sufficient information about the quality and characteristics of products
5. by not providing a fair distribution of resources
Market failures are a rationale for government..