The module builds on ‘Introduction to Economics.’ Whereas that module was devoted to laying down the foundations of economic thinking and applying such thinking to macro concepts, this one will be all about the small constituents of the economy: individuals and firms. We will learn about the pros and cons of taxation, examine the rationale behind governments’ dislike of monopolies, and try to understand why economists believe that competitive firms necessarily make 0 profits. Similar to the ‘Introduction’ module, we will have 8 sessions of one hour each. That means that you will have a new problem set every 2 weeks, so that students need to be prepared to work hard on the details of the material.
In the first two weeks we will discuss how markets work, what elasticities are, and how governments should use taxation. We will also discuss how those concepts interact with the way in which markets create and split welfare between producers and consumers. In week 3 and 4 we will introduce the concept of utility in some detail and take a deep look at how consumers make choices. We will also pick up some simple game theory along the way in order to understand what ‘thinking strategically’ means. In sessions 5 and 6 we will focus on the theory of the firm. We will spend some time on finding out what a firm is, what decisions it makes and what constraints it faces. We will then compare and contrast the main types of market structure, such as perfect competition, monopoly and oligopoly. In the final sessions we will cover a range of important topics in microeconomics. A discussion of externalities will education students about best policies for reducing air pollution. We will introduce the concept of public goods to understand why no one pays out of their own pocket to build roads and bridges. Finally, as we investigate the sources of income inequality we will ask ourselves why the rich get richer.
Like the ‘Introduction’ module, this course will be based on Greg Mankiw’s “Principles of Economics” textbook.