Fundamentally, economics is a way of thinking about the world. It uses a number of simple but widely applicable principles to understand how people make choices under conditions of scarcity and of the results of those choices for society.
The first part of the course (weeks 1-8) focuses on microeconomics, a study of individual choices and of group behavior in individual markets. We start with the three major building blocks of microeconomics: the cost-benefit analysis, the model of supply and demand, and the theory of games. We then zoom in on the demand side of the market and explore the basic theory of rational consumer choice. Finally, we examine some real-life applications of rational choice, and introduce the important notion of ‘consumer surplus’.
The second part of the course (weeks 8-15) focuses on macroeconomics, a study of the performance of national economies and of the policies that governments use to improve economic performance. First, we deal with measurement issues relating to GDP, the price level and the labor market. Then we explore a model of short-run fluctuations (IS-LM) and apply it to the recent U.S. crisis. Finally, we develop a model of medium-run equilibrium (IS-LM-PC) and discuss its implications for the recent European crisis.