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Economics for Policy I: Microeconomics - tools and methods (STG-MA-FCR-ECP1)

STG-MA-FCR-ECP1

Description

Policy leaders often base decisions on forecasts and analyses prepared by others. If they need to hire or consult with economic experts or to read and understand economic research, they must be able to identify high-quality research using state-of-the-art techniques. In other words, they must make independent judgments about the validity of research outputs produced by experts. This means that basic tools in economic theory and econometrics should be part of their training. The purpose of this course is to help students develop a solid understanding of microeconomics, including both the content of this field and the tools needed to undertake microeconomic analyses when facing policy issues.

Economists usually express their theories through mathematical models that are simplified representations of the real world and contrast the results against real economic data. This is what we do in microeconomics as well, in order to understand how agents (i.e., individuals, firms, and governments) make decisions and how their combined decisions determine the allocation of scarce resources. In this course, we will first (re)introduce students to basic concepts in economics, including demand, supply, and elasticity. While doing so, we will review basic principles of decision making and develop useful tools for identifying the choice that strikes the best balance between benefits and costs. We will then turn our attention to markets and study how quantity and prices are determined in markets with different degrees of competition (e.g., competitive market, monopoly, and oligopoly) and their welfare implications. We will also use microeconomic tools to examine the welfare effect of three types of government interventions: (i) taxes and subsidies; (ii) policies designed to raise prices (i.e., price floors such as minimum wages, price supports, production quotas, and voluntary price programs); (iii) import tariffs and quotas. We will see that government intervention creates its own distortions but may be beneficial in the presence of market failures. We will discuss the nature and limitations of private negotiation as well as various public policies to correct for market failures when there are environmental, social, and health externalities. We will identify the characteristics of a good that can justify public provision, with a specific focus on the provision of transnational public goods, such as environmental protection, and the factors promoting collective action at the transnational level. We will understand why common property resources tend to be overused (tragedy of the commons) and analyze possible corrections. Another form of market failure that we will analyze is the presence of asymmetric information, and why this may be the rationale for welfare state policies. Throughout the course, students will acquire the necessary tools to understand the causes and consequences of individual behavior, aggregate economic outcomes, and government interventions. This class will require basic problem-solving and algebra skills.

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