Advanced Principles of Economics

Advanced Principles of Economics: Syllabus

Spring Semester 2016:

Preliminaries:

• W Jan 13: Pre-Class Assignments: Do them all before the first lecture
• W Jan 20: Introduction: What Is Economics? and What Is Microeconomics?; In-Class Math Quiz
• Section 1: Discuss Dasgupta

Microeconomics: Market Success:

• M Jan 25: Foundations: Choice, Opportunity Cost and Willingness-to-Pay, and Demand and Supply; Letter to GSI Due
• W Jan 27: Equilibrium: Price, Quantity, and Economic Surplus
• Section 2: How to do Problem Set 1
• M Feb 1: Monkeying Destructively: Quotas, Price Ceilings and Floors, and Taxes; Problem Set 1 Due

Microeconomics: Market Failure and Its Correction:

• W Feb 3: Monkeying Constructively: Externalities, Pigovian Taxes, and Property Rights
• Section 3: How to do Problem Set 2
• M Feb 8: Market Power: Monopolies, Oligopolies, and "Local" Market Power
• W Feb 10: Increasing Returns: Natural Monopolies, Non-Rivalry, and Regulation; Problem Set 2 Due
• W Feb 17: INSTRUCTOR REALITY-CHECK MIDTERM
• M Feb 22: Public and Near-Public Goods: Non-Excludibility, and Ancillary Services
• W Feb 24: Hidden Information: Adverse Selection, Moral Hazard, and the Economics of Health Care
• Section 4: How to do Problem Set 3
• M Feb 29: Disequilibrium: Expectations, Search, and Rationing
• W Mar 2: Behavioral Economics: Systematic Miscalculation and Nudges; Problem Set 3 Due
• Section 5: How to do Problem Set 4

Microeconomics: Malign Market Success:

• M Feb 7: Social Welfare: Maldistribution, Inequality, Surplus, Desert, Utility, and Fairness
• W Mar 9: Government Failure: Rent-Seeking, Public Choice, and Bureaucracy
• Section 6: Moral philosophy discussion

Microeconomics: Summing Up:

• M Mar 14: REVIEW: Problem Set 4 Due
• W Mar 16: MICRO MIDTERM
• M Mar 21: Spring Vacation Assignment: Slee, Nobody Makes You Shop at Wal-Mart, and Friedman and Director Friedman, Free to Choose

Macroeconomics: Business Cycles:

• M Mar 28: Introduction: What Is Macroeconomics?
• W Mar 30: The Business Cycle: "Say's Law", and "General Gluts"
• Section 7: What went wrong on the micro midterm/political economy discussion
• M Apr 4: The Circular Flow of Economic Activity: Components of Planned Expenditure; Leveraging and Deleveraging
• W Apr 6: Aggregate Demand: Working with the Income-Expenditure Framework
• Section 8: How to do Problem Set 5

Macroeconomics: Macroeconomic Policy:

• M Apr 11: Fiscal Policy: Making "Say's Law" True in Practice I; Problem Set 5 Due
• W Apr 13: Monetary Policy: Making "Say's Law" True in Practice II
• Section 9: How to do Problem Set 6
• M Apr 18: Inflation: Output Gaps, Inflation Gaps, and Expectations

Macroeconomics: Managing the Mixed Economy:

• W Apr 20: The Long Run: Rightsizing the Government, and Long-Run Economic Growth; Problem Set 6 Due
• Section 10: How to do Problem Set 7
• M Apr 25: Where We Are and Where We Are Going: The Macroeconomic Past and Future: 2000-2033;

Conclusion:

• W Apr 27: FINAL REVIEW CLASS
• Section 11: Review of the course
• M May 2: NO LECTURE: Problem Set 7 Due
• W May 4: Reading Period Assignment: Seabright, In the Company of Strangers
• F May 6: Final Paper Due
• M May 9: Pre-Exam Q & A
• F May 13: FINAL EXAM

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How Markets and Governments Go Wrong:

1. Externalities
2. Market Power
3. Non-Rivalry and Increasing Returns
4. Non-Excludibility and Public Goods
5. Adverse Selection and Moral Hazard
6. Maldistribution
7. Miscalculation
8. Disequilibrium
9. Rent Seeking
10. Bureaucracy

Basic Market Equilibrium Calculator

Background

Confronted with any competitive market supply and demand situation, you want immediately to know the answers to four questions:

1. What is the equilibrium price at which the commodity is sold?
2. What is the equilibrium quantity sold?
3. What is the consumer surplus--how much is the existence of the market worth to buyers collectively?
4. What is the producer surplus--how much is the existence of the market worth to the sellers collectively?

If we are willing to assume linear demand and supply curves, we specify the behavior of demanders and suppliers with two parameters each:

• The maximum willingness-to-pay of the consumer who wants the commodity most.
• The number of additional units bought for each $1 drop in the price.

And:

• The minimum willingness-to-supply of the producer who can make the commodity cheapest.
• The number of additional units sold for each $1 increase in the price.

Specify those four numbers under "basic conditions" below, click the "Solve the Model" button, and you will know what you need to know...

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The Basic Conditions: Supply and Demand

• ← Maximum willingness to pay
• ← Additional demand by cutting price by $1
• ← Minimum willingness to supply
• ← Additional supply by raising price by $1

Solve the Model

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The Market Equilibrium

• the price ← The equilibrium price
• the quantity ← The equilibrium quantity
• the consumer surplus ← The equilibrium consumer surplus
• the producer surplus ← The equilibrium producer surplus

Pre-Class Assignments

Before the first day of lecture on Wednesday, January 20, do all of the following::

• Read Partha Dasgupta's Economics: A Very Short Introduction, and prepare for the Section 1 discussion of the book.
• Complete the Other Outside Reading Assignment.
• Review the course's Learning Goals
• Acquire and Register an iClicker.
• Subscribe to the Course RSS Feed.
• Subscribe to your section's chat feed.
• Checkin for Web Discussions, and leave a comment.

Yes, they will be graded...

Learning Goals

The Economics Department's learning goals are things like:

• CT1. Apply economic analysis to evaluate everyday problems
• CT4. Understand the role of assumptions in arguments.
• PS1. Solve problems that have clear solutions.
• PS2. Propose solutions for problems that do not have clear answers, and indicate under what conditions they may be viable solutions.
• CS1. Communicate effectively in written, spoken, and graphical form about specific economic issues.
• CS2. Formulate a well-organized written argument that states assumptions and hypotheses, which are supported by evidence.
• CS3. Present an economic argument orally.
• LL3. Understand and evaluate current economic events and new economic ideas.

But, in my opinion, while these are all worthy, they are too abstract to be of much practical use...

What do people think? What should the learning goals for Principles of Economics be?

Why We Read Partha Dasgupta...

A selection of reviews from Amazon, starting with:

Declan Trott:

‘The extent of the market’ is limited not just by transport but by trust: [T]here is also a feeling that some of the [recent] best-sellers have trivialised economics, titillating the reader with sex and drugs while neglecting the more important insights of the discipline. Nobody could accuse Partha Dasgupta of deepening this rut. In this Very Short Introduction, he has taken as his theme the original mystery of economics: the nature and causes of the wealth of nations. And he motivates the study not with unadorned GDP statistics but by comparing the lives of two young girls: Becky, who lives in an affluent American suburb, and Desta, the daughter of Ethiopian farmers. Why do two children, born so much alike, live such different lives?

Prologue to Partha Dasgupta: Economics: A Very Short Introduction

Becky's world

Becky, who is 10 years old, lives with her parents and an older brother Sam in a suburban town in America's Midwest. Becky's father works in a firm specializing in property law. Depending on the firm's profits, his annual income varies somewhat, but is rarely below 145,000 US dollars ($145,000). Becky's parents met at college. For a few years her mother worked in publishing, but when Sam was born she decided to concentrate on raising a family. Now that both Becky and Sam attend school, she does voluntary work in local education. The family live in a two-storey house. It has four bedrooms, two bathrooms upstairs and a toilet downstairs, a large drawing-cum-dining room, a modern kitchen, and a family room in the basement. There is a plot of land at the rear - the backyard - which the family use for leisure activities.

Reading Notes and Discussion Questions on Dasgupta, "Economics: A Very Short Introduction"

Reading Notes to the Beginning to Get You Started...

Preface

• An account of how economists reason
• Examples of how that reasoning can be applied to (some of) the most urgent problems Humanity faces today
• The lives of Becky--the daughter of a Chicago lawyer--and Desta--the daughter of an Ethiopian farmer couple

Prologue

• Becky's household income $150K/year as the daughter of a Chicago lawyer (and stay-at-home mom)
• Desta the daughter of an Ethiopian corn-growing farmer couple with a household income of $5K/year
• Desta's household's income subject to much greater risks
• Economists look at things from the bottom up: resources, institutions, choices, histories, destinies
• Economists use models and quantitative models

Macroeconomic history

• Annual GDP per capita as a measuring rod:
  • GDP per capita in the world today: $7K/year
  • GDP per capita in the year 1: $500/year
  • GDP per capita in 1800: $1500/year in western Europe; $500/year in Africa; $750/year global average
• Rule of 72
• The world today:
  • 1B people with an average per capita income of $20K/year at the top
  • 3.5B people in the middle
  • 2.5B people with an average per capita income of $2.1K/year at the bottom
  • Agriculture 25% of GDP in poor countries, 5% of GDP in rich countries
• Causes:
  • Proximate causes of the difference: (physical) capital, (human capital) education, gender equality, public health, technologies? markets? division of labor?
  • Deeper causes: institutions (corruption), institutions (markets), institutions (incentives), the application of ideas (technological and organizational), natural resources vs. population growth
  • Virtuous and vicious circles

Reading Notes on Dasgupta, "Economics: A Very Short Introduction": Preface, Prologue, and Macroeconomic History

Things to Note:

Preface * An account of how economists reason * Examples of how that reasoning can be applied to (some of) the most urgent problems Humanity faces today * The lives of Becky--the daughter of a Chicago lawyer--and Desta--the daughter of an Ethiopian farmer couple

Prologue

• Becky's household income $150K/year as the daughter of a Chicago lawyer (and stay-at-home mom)
• Desta the daughter of an Ethiopian corn-growing farmer couple with a household income of $5K/year
• Desta's household's income subject to much greater risks
• Economists look at things from the bottom up: resources, institutions, choices, histories, destinies
• Economists use models and quantitative models

Macroeconomic history

• Annual GDP per capita as a measuring rod:
  • GDP per capita in the world today: $7K/year
  • GDP per capita in the year 1: $500/year
  • GDP per capita in 1800: $1500/year in western Europe; $500/year in Africa; $750/year global average
• Rule of 72
• The world today:
  • 1B people with an average per capita income of $20K/year at the top
  • 3.5B people in the middle
  • 2.5B people with an average per capita income of $2.1K/year at the bottom
  • Agriculture 25% of GDP in poor countries, 5% of GDP in rich countries
• Causes:
  • Proximate causes of the difference: (physical) capital, (human capital) education, gender equality, public health, technologies? markets? division of labor?
  • Deeper causes: institutions (corruption), institutions (markets), institutions (incentives), the application of ideas (technological and organizational), natural resources vs. population growth
  • Virtuous and vicious circles

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Discussion Questions

Preface

• How different do you think the lives of Becky and Desta are?
• How would you go about explaining why the lives of Becky and Desta are different?
• How would an economist go about explaining why the lives of Becky and Desta are different?
• What are the costs and benefits of thinking like an economist?
• What kind of person would start an analysis by asking: "What are the costs and benefits of thinking like an economist?"

Prologue

• Why does Becky's household live outside of Chicago and earn money by having the father work all day outside of the house doing transactions processing rather than, say, living 100 miles further west and growing corn in DeKalb County?
• How different would Becky's life be if her father (and mother) were corn-growing farmers in DeKalb County?
• Why did they choose to become suburban Chicago yuppies?
• Why doe Desta's household live in rural Ethiopia and grow their own corn rather than, say, living in Addis Ababa and earn money by having the father work all day outside of the house doing transactions processing?
• How different would Desta's life be if her father were an Addis Ababa lawyer?
• Why did they choose to become rural Ethiopian subsistence farmers?

Macroeconomic history

• In the long sweep of human history, is Becky very lucky, lucky, unlucky, or very unlucky?
• In the long sweep of human history, is Desta very lucky, lucky, unlucky, or very unlucky?
• How much richer is the world today than it was in the long centuries from 5000 BC to 1800?
• How much richer are the world's rich today than the world's poor today?
• What would count as an explanation of this divergence across space and time--that is, what kinds of things would count as "causes" and make you happy that you understood what was going on?
• How many useful "hierarchies of causation" can you imagine here?

Section 1: Discussion of Partha Dasgupta: Economics: A Very Short Introduction

• Prologue to Partha Dasgupta: Economics: A Very Short Introduction
• Reading Notes and Discussion Questions
• Why We Read Partha Dasgupta

In-Class Math Quiz

https://www.icloud.com/iw/#keynote/BAINxpg8KwoKFA4sdpmB5n8oGHgXPE0VsVyF/20140516_In-Class_Math_Quiz_*_Principles_of_Economics.key