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As background for core courses, Microeconomics begins with a review of trends in the U.S. income distribution including factors in increasing inequality - the rising rate of return to education, immigration, winner-take-all markets at the top of the distribution, and so on.
The course then begins a standard discussion of supply, demand and elasticity. At the outset, students are asked to consider three measures of value - What a good costs the producer to make; What a good costs you to buy; and What a good is worth to you (i.e. it is easy to think of two goods that cost the same but are not worth the same to you). The remainder of the course will focus on the interactions of these three measures.
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Continue supply, demand and elasticity. Use Paul Joskow's history of California electricity deregulation as a motivating example. Joskow's paper illuminates the two reasons (as I count them) why the system was vulnerable to problems including being ripped off. One was the rule against writing futures contracts which kept the state in the spot market. The second was the political nature of the system: in order to give immediate payoffs to consumers, utilities, etc. the system implicitly assumed that the low wholesale electricity prices of the mid-1990s would continue indefinitely. Once the economy recovered and wholesale prices rose, the system was unsustainable. |
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Utility Maximization - standard treatment, picking up on three measures of value above. |
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Costs, Technology and Technical Change: Autor, Levy and Murnane piece uses two back office departments in a bank to show how and why computers substituted for some human tasks and complemented others. |
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Begin logic of Profit Maximization - standard treatment, picking up on three measures of value above. Emphasize that the particular strategy of profit maximization depends on market structure. |
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Profit Maximization in Perfect Competition - standard treatment. |
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Profit Maximization in Monopoly - standard treatment emphasizing that in the past, monopoly has come largely from the supply side and economies of scale (or government monopoly) but now monopoly can come from the demand side and network externalities (e.g. Microsoft).
Also Profit Maximization in Oligopoly and Monopolistic Competition. In the past, both topics have been treated very briefly - a kinked demand curve model in Oligopoly, a brief run-by of monopolistic competition using Palm Pilots and related pda's as an example. I am currently redesigning this section around Cournot and Bertrand Competition leading to a recent paper by Glen and Sarah Ellison on how web retailers survive competitive pressure using bait and switch techniques.
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9 |
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Short Introduction to Game Theory.
Discussion of Financial Excesses of the Past Decade - emphasis is on the importance of correct inventive design. Fuller and Jensen paper argues that CEO options began from a good idea but in the 1990s bubble, the options became hostage to stock analysts who set extravagant earnings projections to keep investors buying. In this environment, failure to make an earnings projection could ultimately cause a stock price (and a CEO's wealth) to collapse and this ultimately forced cooking of the books.
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Introduction to Public Goods, Externalities, etc. - standard treatment.
(Microeconomics Ends; Planning Economics Begins)
Planning Economics, required of all students, is a more multi-discipline module which begins with an economic treatment of a subject and then presents a non-economist talking about a specific application/problem.
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11 |
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Theory = Public Goods and Externalities.
Application = Use of zoning to achieve particular ends in a Massachusetts suburb. Example taught by a faculty member who had been the head planner for several suburban towns. Example focuses on difficulty of translating goals into regulations.
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12 |
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Theory = Location Theory.
The three papers combine to give a lively and accessible review of the major theories of why economic activity agglomerates, the role (if any) of information technologies of diffusing the activity, etc. This is also a chance to reintroduce monopolistic competition since locational differences are enough to turn otherwise identical producers into monopolistic competitors.
Application = The New York City budget situation. Case taught by the last city budget director under Rudy Giuliani. Emphasis is on how you think about dealing with the current deficit while minimizing those service cuts which will drive more business and middle class families out of the city, thereby deepening the problem.
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Theory = International Trade Theory.
Application = Relevancy of International Labor Standards. Case taught by faculty member who has been active in NGO's and other groups building networks that try to improve working conditions in foreign suppliers to Nike, Banana Republic, etc., through publicity, etc.
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Theory = Very Basic Investment Tools - NPV, IRR, etc.
Application = Evaluating a proposed building renovation project. Case taught by an adjunct faculty member who has a real estate finance practice. Assigned case consists of several pages of background, questions, and a spreadsheet with all the relevant information (and other information that is not relevant). Before class, students have to use the spreadsheet information to set up and perform the calculations required to answer the questions.
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