Course Syllabus

Programming in R for policy simulations

• Intro to R Links to an external site. (code Download code)
  • Major elements of Rstudio; how to create data; using the sequence function; how to create your own function.
• Functions in R Links to an external site. (code)
  • Illustrates the usefulness of writing functions for policy simulations, where a parameters are defined as inputs are used in a series of steps to produce output. 
• Saving Multiple Results in Functions in R Links to an external site. (code Download code)
  • Illustrates how to write a function that remembers more than one result using the "cbind" command. Uses market equilibrium price and quantity from supply and demand functions as an example. 

Foundations of Economics

• Introduction to Economics (for V517) Links to an external site.
  • Definition of economics, answering the questions of society, microeconomics, macroeconomics
• Economics and the Scientific Method Links to an external site.
• Incentives and Economics Links to an external site.
• Economics in Cultural Context Links to an external site.
• Behavior and Choice Links to an external site.
• Economics and Equity Links to an external site.

Foundational Tools in Economics

• Opportunity Costs Links to an external site.
• Comparative Advantage Links to an external site.
• Market Exchange Links to an external site.
• Marginal Analysis and Cost Benefit Analysis Links to an external site.
• Property Rights Links to an external site.

Financial Investment

• Discounting Theory Links to an external site.
  • What it is and why we do it, connection between theory and markets
• Financial Formulas Links to an external site.
  • Future Value of a Present Amount, Present Value of a Future Amount, Annuity Value of a Present Amount, Present value of Annuity, Present Value of Growing Annuity
• Inflation Links to an external site.
  • Purchasing power of money, base year conversions, methods for inflation adjustment in net present value analysis
• Alternative Investment Criteria Links to an external site.
  • Net present value, internal rate of return, benefit cost ratio, simple payback period, comparing projects with different lifecycles, capital costs, and irreversible investments ("wait and see NPV")

Supply and Demand

• Demand Curves Links to an external site.
  • Law of demand; Slope of demand; meaning of the height of the demand curve
• Demand Shifters Links to an external site.
  • Change in price versus change in demand; factors that shift the demand curve
• Market Demand Links to an external site.
  • Horizontal summation from individual to market; equal marginal benefit at each price
• Consumer Surplus Links to an external site.
  • Calculating CS, locating CS on demand curve, consumer expenditure
• Demand Curve Math Links to an external site.
  • Demand function with income component, finding key points along demand curve, consumer surplus, consumer expenditure
• Supply Theory Links to an external site.
  • Law of supply; meaning of the height of the supply curve, 
  • market supply; Horizontal summation from individual to market; equal marginal cost
• Supply Shifters Links to an external site.
  • Change in price versus change in supply; factors that shift the supply curve
• Supply Curve Math Links to an external site.
  • Supply function, finding key points along supply curve, producer surplus, producer revenue
• Producer Surplus Links to an external site.
  • Calculating PS, locating PS on supply curve, producer revenue
• Interpreting Supply and Demand Links to an external site.
  • Comprehensive (44:43) review of interpretations of curve heights and areas under the curve.

Markets

• Determination of Market Equilibrium Links to an external site.
  • Demonstrates the market clearing price is where quantity demanded is equal to quantity supplied.
• Shifts in Supply and Demand Links to an external site.
  • Demonstrates impacts of different market shocks on equilibrium price and quantity.
• Properties of Market Equilibrium Links to an external site.
  • Maximizes the total area of consumer & producer surplus; equal marginal benefit and equal marginal cost
• Rationing in Markets to Maximize Total Benefits Links to an external site.
  • Demonstrates rationing to maximize total benefits among individual consumers
• Rationing in Markets to Minimize Total Costs Links to an external site.
  • Demonstrate rationing minimize total costs among the individual producers.
• Supply and Demand Math Links to an external site.
  • Demonstrates how to solve for the market price and quantity from supply & demand equations
• Role of Prices and Caveats Links to an external site.

Welfare Analysis & Markets (Cost Benefit Analysis)

• Interpreting Market Curves for Benefits and Costs Links to an external site.
  • Interpretations of Demand Curves (marginal benefit, total benefit, willingness to pay)
  • Interpretations of Supply Curves (marginal cost, total costs, willingness to accept)
• Cost Benefit Analysis of Market Impacts (With Kaldor Hicks Tableaus) Links to an external site.
• Calculating Areas Under the Curve Links to an external site.
  • Geometry and Calculus
• 2020 Review Session (75 minutes) Links to an external site.
  • We spent a whole session in 2020 just practicing these interpretations and the wording (e.g. marginal vs. total)

Applications in Supply & Demand

• Market Elasticity Links to an external site. 
  • Elastic vs. inelastic supply and demand curves.
• Input and Output Markets Links to an external site.
  
  • Example: How change input market might effect output market
  • Example: How change in output market might effect input market
• Taxation: Price Changes and Adjustments Links to an external site.
  
  • Overview how prices change (price received by producers, paid by consumers, changes in surplus)
  • Graph components
  • Provides summary of how supply and demand equations adjust to introduction of tax/subsidy.
  • Other tax responses: Alchian-Allen Theorem
• Tax Incidence Links to an external site.
  
  • Graphical illustration of tax equivalence
• Tax Deadweight Loss Links to an external site.
  
  • Brief overview of the intuition. Graphical demonstration in “price changes in adjustments”.
• Tax Math Links to an external site.
  
  • Two examples of calculating social surplus changes.
  • The two examples also demonstrate tax equivalence.
  • Also includes summary of how supply and demand equations adjust to introduction of tax/subsidy.
• Subsidy Links to an external site.
  
  • Briefly summarizes “negative tax” adjustments. Shows changes in prices, social surplus, and deadweight loss.
• Price Controls Links to an external site. 
  • Price Ceilings and Price Floors: Social Surplus Calculations
• Markets as Data Processing Systems Links to an external site. 
  • How markets use knowledge
  • Demand Displacement and Supply Expansion
• Social Cost of Government Spending Links to an external site. 
  • Social Surplus lost with government purchases

Institutional Failures and Difficult Cases for Markets

• Introduction to Institutional Failures Links to an external site.
• Coase Theorem Links to an external site.
  • Explains Coase Theorem and gives an example of how externalities are property right problems and the irrelevance of initial property rights assignment when bargaining costs are zero
• Externalities Links to an external site.
  • Demonstrates 4 cases where externalities separate private and social optimal outcomes; distinguishes between technological and pecuniary externalities.
• Externality Math Links to an external site.
  • Shows a simple example of how you might introduce externalities in finding the socially optimal level of output.
• Information Problems Links to an external site.
  • Information asymmetry concepts (Adverse Selection, Moral Hazard, Principal-Agent Problems)
• Market Failure Policies – Externalities Links to an external site.
  • Correcting externalities (3 general approaches)
  • Pigouvian Approach and Considerations
  • Coasian approaches
  • Regulatory approaches
• Market Failure Treatment from the Private Sector Links to an external site. 
  • Examples of how signaling can be used to solve information problems
• Public Goods Links to an external site.
  • Defines public goods (non-rivalry and non-excludability)
  • Demonstrates vertical summation for social benefits.
• Tragedy of the Commons Links to an external site. 
  • Defines
  • Discusses example cases

Consumer Choice

• Demand Functions Links to an external site.
  
  • Gives linear demand function example; Interpretations of function.
• Elasticities of Demand Links to an external site.
  
  • Interpretation and calculation of: price elasticity of demand; income elasticity; cross-price elasticities; examples are done for word problems, linear demand equations; log-log demand equations.
  • Drawing elasticities from Empirical Studies.
  • Factors Affecting Elasticity

Production

• Production Technology Links to an external site.
  • Defining production functions, short-run vs long-run, intro to the idea of optimal input use, law of diminishing returns (table and graph), economic returns to scale
• Isoquants Links to an external site.
  • Derivation, marginal rate of technical substitution, productivity changes (dynamics), slope of isoquant, demonstration of diminishing marginal returns.
• Isocost Curves Links to an external site.
  • Plots isocost curve, slope of isocost curve, shifts/rotations in isocost analysis.
• Input Optimization Links to an external site.
  • Bringing together isoquants with isocost; conditions for optimization; “optimization as an entrepreneur would see it”; marginal revenue product.
• Pigouvian Dirty Input Tax Links to an external site.
  • Demonstrates that an output tax on a good which uses a “dirty” factor of production is less efficient than a tax on the dirty factor of production itself.
• Long Run vs Short Run Optimization Links to an external site.
  • Uses optimal input spreadsheet to demonstrate that shocks to output demand have higher costs in short-run optimization than under long-run optimization.
• Cost Types Links to an external site.
  
  • Definitions of accounting cost, economic cost, fixed cost, variable cost, sunk cost, marginal cost, and average costs (variable, fixed, total).
• Costs Tabular Demo Links to an external site.
  • Uses a table to demonstrate the cost types
• Costs Graphical Demo Links to an external site.
  • Uses graphs to demonstrate cost types
• Economies of scale Links to an external site.
  • Economies versus diseconomies of scale; Graphical demonstration; describes possible sources;

Competitive Price Takers

• Types of Firms Links to an external site.
  • Sole proprietorship; partnership; corporation; purpose of firms; transaction costs
• Perfect Competition Links to an external site.
  • Assumptions; Occurrence; Market vs Firm; Marginal Analysis; Profit function; long run equilibrium
• Market Dynamics Links to an external site.
  • Demonstrates via video; shows positive market demand shock and the dynamics of a perfectly competitive market that earns short run profits but returns to a long run equilibrium of zero profits.
  • Demonstrates via video a positive supply shock arising from a new cost saving technology.
• Shut Down Rule Links to an external site.
  • Discussion of when firms stay-open versus shut-down; Math demo; graphical demo

Competitive Price Searchers

• Monopolistic Competition: Intro Links to an external site. 
  • Assumptions; monopoly power definition; Compare firms in monopolistic competition versus one in perfect competition.
• Monopolistic Competition: Marginal Revenue Links to an external site.
  
  • Demonstrates marginal revenue curve as downward sloping at a faster rate than demand, illustrates using a table.
• Monopolistic Competition: Graphical Analysis Links to an external site.
  
  • Shows monopoly mark-up of price over marginal cost, choosing output at MR=MC, shows how price versus average cost determines profit. Also uses a table to show profit maximization.
• Monopolistic Competition: Market Dynamics Links to an external site.
  
  • Short-run versus long-run firm entry and exit.
• Price Discrimination Links to an external site.
  • Explains potential for social benefits of price discrimination and identifies common examples of strategies (1st degree, 2nd degree, 3rd degree, 2-part-tariff, bundling)
• Price Elasticity Applications Links to an external site. 
  • Using price elasticity to predict demand, the "pure selling problem", and the optimal mark-up rule.

Monopoly and Strategic Competition

• Monopoly Introduction Links to an external site.
  • What is monopoly?
• Monopoly Price Setting
  • How monopolies set prices; social welfare implications
• Monopoly Application – Cost Saving Tech
  • Applied marginal analysis reasoning; sets up discussion of regulatory trade-offs
• Natural Monopoly and Regulation Links to an external site.
  • Demo natural monopoly case; illustrate price regulation trade-offs; Discusses trade-offs and other regulatory issues.
• Ramsey Pricing Links to an external site.
  • Demonstrate Ramsey pricing approaches to pricing output; Provides link toExcel Demo Links to an external site..
• Antitrust law Links to an external site. 
  • Intro to idea; measuring market competition (HHI, Lerner Index); Criticisms of antitrust law
• Game Theory Introduction Links to an external site.
  • Intro; Notation; Types of Games
• Game Theory – Simultaneous Games Links to an external site.
  • Demonstrates how to solve normal form games
• Game Theory – Applied Simultaneous Links to an external site.
  • Prisoner’s Dilemma; Advertiser’s Dilemma
• Game Theory – Sequential Games Links to an external site.
  • Demonstrates how to solve extensive form games
• Game Theory – Applied Sequential Links to an external site.
  • The “Low Price” Guarantee

BELOW NOT WORKING/DISCONTINUED

Finance Formulas

• Discounting [pdf]
  • Why discount? How does it affect valuation?
• Inflation [pdf]
  • Theory; Methods for adjusting cash flows
• Annual Value of Present Amount[pdf]
• Future Value of Present Amount[pdf]
• Present Value of Annuity[pdf
• Present Value of Future Amount
• Perpetuities
• Presenting Value of Growing Annuity[pdf]
• Comparing Projects of Different Lengths[pdf]
• Project Analysis Example 1[pdf]
• Project Analysis Example 2[pdf]

Alternative Investment Criteria & Considerations

• Net Present Value [pdf]
• Internal Rate of Return [pdf]
• Benefit Cost Ratio[pdf]
• Simple Payback Period[pdf]
• Irreversible Investments[pdf]
  • “wait and see NPV”
• Lifecycle Analysis[pdf]
  • Comparing projects of different lengths
• Capital Costs[pdf]
• MARKETS
• Market Shifts Links to an external site. [NOT WORKING-SOUND DEAD]
  • Demonstrates how equilibrium price/quantity change with shifts in supply/demand.