Summary: European Economics MICRO: Seminars + book chapters
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Course
European Economics
Institution
Universiteit Van Amsterdam (UvA)
Book
The Economy
A complete overview of all my notes taken during the "European Economics: Micro" course: SEMINARS + A summary of the book chapters we had to study for the course. Also: there are some answers to exercises from the "The Core Team, The Economy -Economics for a changing world," book. ENGLISH.
Important terms (treaties, policies, people, economic terms)
Added information to complete the answer from the answerbook.
Lists of important stuff
Extra notes about something non-substantively
Cursive words are just translations of the English word to Dutch. Don’t worry about it
if you’re not Dutch, you won’t miss out on things.
> Furthermore, only the answers to Sandel’s article are in Dutch but feel free to put
the answers into google translate.
SEMINAR 1
Weekly assignments, submit every week on tuesday
Next week's presentation! 10% off the grade
Understand the concept and why it is like that instead of just the right answer
Send the weekly assignments to him
Literature:
*Baldwin, R. and Wyplosz, C. The Economics of European Integration. 5th ed.,
McGraw-Hill, 2015.
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,*The Core Team, The Economy -Economics for a changing world, Oxford University
Press, 2017. > ONLINE
*Sandel, J. (2013), Market Reasoning as Moral Reasoning: Why Economists should
re-engage with political philosophy, Journal of Economic Perspectives 27(4), pp.
121-140
Question 1:
[i] Which "propensity in human nature" does Smith mention?
Self-interest: people want something in return. They do not do something just for
someone else. Propensity in human nature > characteristic of a human is to
CHANGE things! It is part of being human! And Smith builds his whole economic
system from that on.
[ii] What distinguishes men from animals, according to Smith?
People change one thing for another but dogs can’t because they have nothing to
offer. SO again, change and understanding! Nobody ever saw one animal, by its
gestures and natural cries signify to another, this is mine, that yours; I am
willing to give this for that. When an animal wants to obtain something either of a
man, or of another animal, it has no other means of persuasion, but to gain the
favour of those whose service it requires
Man differs from animals in that we can understand the self interest of our fellow
man and appeal to their self interest. A dog can not fathom the self interest of his
master, nor use it to his own advantage.
[iii] Does Smith convince you that "It is not from the benevolence of the butcher
(welwillendheid van de slager), the brewer, or the baker that we expect our dinner"?
Then, from what do we expect it, according to Smith?
We expect it not from benevolence but for the simple reason they want to get
something out of the exchange for themselves: profit.
[iv] When, according to Smith, does benevolence still play a (minor) role?
When you give money to a bagger: this has to do with social-norms. It is a humanly
‘good’ thing to do and therefore sometimes expected from people to do so. Maybe
this is in our nature.
Question 2:
The metaphor of the 'invisible hand' is frequently evoked to describe
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,and to justify the market mechanism. Smith, however, only mentions the term once in
Wealth of Nations. You can find the passage below. Please read it.
Who is led by the invisible hand to promote what?
It’s a metaphor: ‘the invisible hand’. Market forces. An unintended outcome. Because
for example I’m a coffeemaker and want to make a living for myself, just by doing
that I will provide coffee to the people that want coffee. So without me wanting to
make a living that coffee wouldn’t be available.
The common man is led by the invisible hand, unknown by himself or society at
large. His industrious striving for profit and his efforts to enlarge his annual revenue,
creates an enlargement of the public good. His maximisation goals and those of
others creates a larger benefit to society. More wealth and more productivity.
Specialization leads to better quality: this is also an unintended side effect of this
process
! Wealth maximization is always the number 1 thing we look at as economics
SEMINAR 2
4.3 Prisoners Dilemma
The dominant strategy is the best choice one can make, (not) depending on the
decision the other player makes
Prisoners dilemma = You have two players both seeking for the best outcome of a
game while not in contact with each other.
Dominant strategy equilibrium = The dominant strategy which both players will use in
the game.
Simultaneous game = a game in which players choose strategies simultaneously, for
example the prisoners’ dilemma.
! Keep in mind, the predicted outcome (dominant strategy equilibrium) is not always
the best feasible outcome.
In economic examples, the mutually beneficial strategy (best outcome for both) is
generally termed Cooperate, while the dominant strategy is called Defect.
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,Cooperate does not mean that players get together and discuss what to do. The
rules of the game are always that each player decides independently on a strategy.
Exercise 4.2.2
Political Party VVD
* Have political Not use political
advertising advertising
Have political 33:33 44:11
advertising
Not use political 11:44 22:22
advertising
Political Party GroenLinks
*The numbers in the matrix are the amount of votes in seats in the parliament the
political parties would obtain.
In this case, the dominant strategy for both VVD and GroenLinks will be to ‘Have
political advertising’. This is the best outcome in both cases. Moreover, this is the
dominant strategy equilibrium which means both players will use this tactic in the
game. In this case, this is also the best feasible outcome.
4.5 Altruistic preferences in the prisoners’ dilemma
Free ride = Benefiting from the contributions of others to some cooperative project
without contributing oneself (meeliften).
As a player of a prisoners dilemma you can be:
1. completely selfish
- You do not care about the other player(s)
- The indifference curve is completely vertical
2. somewhat altruistic
- You do somewhat care for the other player(s), while also caring about
your own outcome.
- The indifference curve is downward-sloping
In many cases, it is best if both players are somewhat altruistic. This often gives the
relatively best outcome of the whole situation.
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, Moreover, the main lesson is that if people care about one another, social dilemmas
are easier to resolve.
Exercise 4.4
If everyone was entirely self-interested, the society we live in nowadays would be
completely different.
1. Starting off with families, we may not have that good of a bond. For example,
being self-interested with christmas or birthdays, we would NOT buy someone
else gifts (because that would go on the expanse of our own money) and only
expect others to buy US gifts. This would create a really weird atmosphere in
the family.
2. Second of all, if we were entirely self-interested on the workfloor we would
only focus on making more money for OURSELVES, not working as a team,
because there is no interest in helping one another. In the end this may not
lead to the most feasible outcome which we would most likely obtain if we
merged knowledge and worked together.
3. If we were completely self-interested in the neighbourhood, everyone would
maybe throw loud parties every week, not caring about other people who
might want to sleep. In the end, this would also not lead to the most feasible
outcome, while everyone is losing sleep. If you work together and plan for
example giving parties on weekends, everyone can party AND sleep.
4. In trafic we honestly already are self-interested. We drive to work all together
at the same time because we all want to drive to work at that specific time. If
we would work together, and be less-self interested, we could divide the days
of going to work at that specific time, which will lead to no/less traffic in the
early mornings.
5. If we would be completely self-interested in politics people would not think
about the environments and the consequences of for example inequality. I
think people would still vote, but on different parties.
4.10 Ultimatum game
The ultimatum game = Study social preferences by observing choices people make
when there is 1 ‘product’ and two people.
How does it work?
1. There is one proposer, and the other the responder.
2. The subjects do not know each other, but they know the other player was
recruited to the experiment in the same way.
3. Subjects remain anonymous.
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