Master 2020/2021

Applied Economics

Category 'Best Course for Career Development'

Category 'Best Course for Broadening Horizons and Diversity of Knowledge and Skills'

Type: Compulsory course (Economics, Politics, and Business in Asia)

Area of studies: Foreign Regional Studies

Delivered by: Faculty of World Economy and International Affairs

Where: Faculty of World Economy and International Affairs

When: 1 year, 1, 2 module

Mode of studies: offline

Instructors: Ivan Deseatnicov

Master’s programme: Экономика, политика и бизнес в Азии

Language: English

ECTS credits: 5

Contact hours: 60

Course Syllabus

Abstract

This course is primarily designed to introduce principles of economics in a practical way for those students who have not taken any rigorous economics courses. Accordingly, emphasis will be laid on the economic way of thinking and on practical issues, rather than on mathematical details. After taking this course, it is hoped that the students can understand and have their own views on economic issues that appear in the news media, albeit rudimentary. The textbook written by Gregory Mankiw was chosen, keeping this emphasis in mind. It is almost without mathematics, but with some graphs, case studies and newspaper articles. Additionally, I also strongly recommend for advanced students to read books written by Krugman & Wells and Frank, Bernanke, Antonovics & Heffetz for relatively deep understanding.

Learning Objectives

• The purpose of this course is to introduce the theory of both micro- and macro-economics. After taking this course, it is hoped that the students can
• Achieve a reasonable understanding of basic theories of economics.
• Understand economic issues in news media.
• Establish foundation for further studying various subjects of economics.

Expected Learning Outcomes

• students should describe the following: why inflation results from rapid growth in the money supply; the meaning of the classical dichotomy and monetary neutrality; why some countries print so much money that they experience hyperinflation; how the nominal interest rate responds to the inflation rate; the various costs that inflation imposes on society.
• students should describe the following: how a budget constraint represents the choices a consumer can afford; how indifference curves can be used to represent a consumer’s preferences; how a consumer’s optimal choices are determined; how a consumer responds to changes in income and changes in prices; how to decompose the impact of a price change into an income effect and a substitution effect; how to apply the theory of consumer choice to three questions about household behavior
• students should describe the following: how economists apply the methods of science; how assumptions and models can shed light on the world; two simple models—the circular flow and the production possibilities frontier; the difference between microeconomics and macroeconomics; the difference between positive and normative statements; the role of economists in making policy; why economists sometimes disagree with one another.
• students should describe the following: how everyone can benefit when people trade with one another; the meaning of absolute advantage and comparative advantage; how comparative advantage explains the gains from trade; how to apply the theory of comparative advantage to everyday life and national policy.
• students should describe the following: how much economic growth differs around the world; why productivity is the key determinant of a country’s standard of living; the factors that determine a country’s productivity; how a country’s policies influence its productivity growth.
• students should describe the following: how net exports measure the international flow of goods and services; how net capital outflow measures the international flow of capital; why net exports must always equal net foreign investment.
• students should describe the following: how saving, domestic investment, and net capital outflow are related; the meaning of the nominal exchange rate and the real exchange rate; purchasing-power parity as a theory of how exchange rates are determined.
• students should describe the following: how the consumer price index (CPI) is constructed; why the CPI is an imperfect measure of the cost of living; how to compare the CPI and the GDP deflator as measures of the overall price level; how to use a price index to compare dollar figures from different times; the distinction between real and nominal interest rates
• students should describe the following: how to build a model to explain an open economy’s trade balance and exchange rate; how to use the model to analyze the effects of government budget deficits; how to use the model to analyze the macroeconomic effects of trade policies; how to use the model to analyze political instability and capital flight
• students should describe the following: some of the important financial institutions in the U.S. economy; how the financial system is related to key macroeconomic variables; the model of the supply and demand for loanable funds in financial markets; how to use the loanable-funds model to analyze various government policies; how government budget deficits affect the U.S. economy
• students should describe the following: that economics is about the allocation of scarce resources; that individuals face trade-offs; the meaning of opportunity cost; how to use marginal reasoning when making decisions; how incentives affect people’s behavior; why trade among people or nations can be good for everyone; why markets are a good, but not perfect, way to allocate resources; what determines some trends in the overall economy;
• students should describe the following: the data used to measure the amount of unemployment; how unemployment can result from minimum-wage laws; how unemployment can arise from bargaining between firms and unions; how unemployment results when firms choose to pay efficiency wages.
• students should describe the following: the effects of government policies that place a ceiling on prices; the effects of government policies that put a floor under prices; how a tax on a good affects the price of the good and the quantity sold; that taxes levied on sellers and taxes levied on buyers are equivalent; how the burden of a tax is split between buyers and sellers.
• students should describe the following: the labor demand of competitive, profit-maximizing firms; the household decisions that lie behind labor supply; why equilibrium wages equal the value of the marginal product of labor; how the other factors of production—land and capital—are compensated; how a change in the supply of one factor alters the earnings of all of the factors.
• students should describe the following: the link between buyers’ willingness to pay for a good and the demand curve; how to define and measure consumer surplus; the link between sellers’ costs of producing a good and the supply curve; how to define and measure producer surplus; that the equilibrium of supply and demand maximizes total surplus in a market.
• students should describe the following: the meaning of the elasticity of demand; what determines the elasticity of demand; the meaning of the elasticity of supply; what determines the elasticity of supply; the concept of elasticity in three very different markets (the market for wheat, the market for oil, and the market for illegal drugs).
• students should describe the following: the relationship between present value and future value; the effects of compound growth; how risk-averse people reduce the risk they face; how asset prices are determined.
• students should describe the following: the theory of liquidity preference as a short-run theory of the interest rate; how monetary policy affects interest rates and aggregate demand; how fiscal policy affects interest rates and aggregate demand; the debate over whether policymakers should try to stabilize the economy.
• students should describe the following: three key facts about short-run economic fluctuations; how the economy in the short run differs from the economy in the long run; how to use the model of aggregate demand and aggregate supply to explain economic fluctuations; how shifts in either aggregate demand or aggregate supply can cause booms and recessions.
• students should describe the following: what a competitive market is; what determines the demand for a good in a competitive market; what determines the supply of a good in a competitive market; how supply and demand together set the price of a good and the quantity sold; the key role of prices in allocating scarce resources in market economies.
• students should describe the following: what an externality is, why externalities can make market outcomes inefficient; the various government policies aimed at solving the problem of externalities; how people can sometimes solve the problem of externalities on their own; why private solutions to externalities sometimes do not work; the defining characteristics of public goods and common resources;
• students should describe the following: what characteristics make a market competitive; how competitive firms decide how much output to produce; how competitive firms decide when to shut down production temporarily; how competitive firms decide whether to exit or enter a market; how firm behavior determines a market’s short-run and long-run supply curves.
• students should describe the following: what items are included in a firm’s costs of production; the link between a firm’s production process and its total costs; the meaning of average total cost and marginal cost and how they are related; the shape of a typical firm’s cost curves; the relationship between short-run and long-run costs.
• students should describe the following: what market structures lie between monopoly and competition; competition among firms that sell differentiated products; how the outcomes under monopolistic competition and under perfect competition compare; the desirability of outcomes in monopolistically competitive markets; the debate over the effects of advertising; the debate over the role of brand names.
• students should describe the following: what money is and what functions money has in the economy; what the Federal Reserve System is; how the banking system helps determine the supply of money; what tools the Federal Reserve uses to alter the supply of money.
• students should describe the following: what outcomes are possible when a market is an oligopoly; the prisoners’ dilemma and how it applies to oligopoly and other issues; how the antitrust laws try to foster competition in oligopolistic markets.
• students should describe the following: why an economy’s total income equals its total expenditure; how gross domestic product (GDP) is defined and calculated; the breakdown of GDP into its four major components; the distinction between real GDP and nominal GDP; whether GDP is a good measure of economic well-being.

Course Contents

• Ten Principles of Economics and Thinking like an Economist
  The purpose of the 1st week class is twofold: First, it is to lay out ten economic principles that will serve as building blocks for the rest of the classes. The ten principles can be grouped into three categories: how people make decisions, how people interact, and how the economy works as a whole. Second, it is to familiarize students with how economists approach economic problems. With practice, they will learn how to approach similar problems in this dispassionate systematic way. They will see how economists employ the scientific method, the role of assumptions in model building, and the application of two specific economic models. Students will also learn the important distinction between two roles economists can play: as scientists when we try to explain the economic world and as policymakers when we try to improve it.
• Supply and Demand
  The purpose of the 2nd week class is twofold: First, it is to establish the model of supply and demand. The lecture shows how supply and demand for a good determines both the quantity produced and the price at which the good sells. The model of supply and demand is the foundation for the discussion for the remainder of the class. Second, it is to add precision to the supply-and-demand model. The lecture introduces the concept of elasticity, which measures the responsiveness of buyers and sellers to changes in economic variables such as prices and income. The concept of elasticity allows to make quantitative observations about the impact of changes in supply and demand on equilibrium prices and quantities.
• Supply, Demand and Government Policies
  The purpose of the 3rd week class is to consider two types of government policies—price controls and taxes. Price controls set the maximum or minimum price at which a good can be sold while a tax creates a wedge between what the buyer pays and what the seller receives. These policies can be analyzed within the model of supply and demand. Students will find that government policies sometimes produce unintended consequences.
• Consumers, Producers, and the Efficiency of Markets and Quiz I
  The purpose of the 4th week class is to develop welfare economics—the study of how the allocation of resources affects economic well-being. The previous lectures employed supply and demand in a positive framework, which focused on the question, “What is the equilibrium price and quantity in a market?” This lecture now addresses the normative question, “Is the equilibrium price and quantity in a market the best possible solution to the resource allocation problem, or is it simply the price and quantity that balance supply and demand?” Students will discover that under most circumstances the equilibrium price and quantity is also the one that maximizes welfare.
• The Costs of Production
  The purpose of the 5th week class is to address the costs of production and develop the firm’s cost curves. These cost curves underlie the firm’s supply curve. The previous lectures summarized the firm’s production decisions by starting with the supply curve. While this is suitable for answering many questions, it is now necessary to address the costs that underlie the supply curve to address the part of economics known as industrial organization—the study of how firms’ decisions about prices and quantities depend on the market conditions they face.
• Firms in Competitive Markets
  The purpose of the 6th week class is to examine the behavior of competitive firms—firms that do not have market power. The cost curves developed in the previous class shed light on the decisions that lie behind the supply curve in a competitive market.
• Monopoly
  The purpose of the 7th week is to examine the production and pricing decisions of monopolists, the social implications of their market power, and the ways in which governments might respond to the problems caused by monopolists.
• Measuring a Nation’s Income
  The purpose of the 9th week class is to provide students with an understanding of the measurement and the use of gross domestic product (GDP). GDP is the single most important measure of the health of the macroeconomy. Indeed, it is the most widely reported statistic in every developed economy.
• Measuring the Cost of Living
  The purpose of the 10th week class is twofold: First, it is to show students how to generate a price index and, second, to teach them how to employ a price index to compare dollar figures from different points in time and to adjust interest rates for inflation. In addition, students will learn some of the shortcomings of using the consumer price index as a measure of the cost of living.
• Production and Growth
  The purpose of the 11th week class is to examine the long-run determinants of both the level and the growth rate of real GDP per person. Along the way, students will discover the factors that determine the productivity of workers and address what governments might do to improve the productivity of their citizens.
• Saving, Investment, and the Financial System and Quiz II
  The purpose of the 12th week class is to show how saving and investment are coordinated by the loanable funds market. Within the framework of the loanable funds market, students are able to see the effects of taxes and government deficits on saving, investment, the accumulation of capital, and ultimately, the growth rate of output.
• Unemployment
  The purpose of the 13th week class is to introduce students to the labor market. The lecture will show how economists measure the performance of the labor market using unemployment statistics. It will also address a number of sources of unemployment and some policies that the government might use to lower certain types of unemployment.
• Basic Concepts of the Open Economy Macroeconomics
  The purpose of the 14th week class is to develop the basic concepts macroeconomists use to study open economies. It addresses why a nation’s net exports must equal its net capital outflow. It also addresses the concepts of the real and nominal exchange rate and develops a theory of exchange rate determination known as purchasing-power parity.
• A Macroeconomic Theory of the Open Economy
  The purpose of the 15th week class is to establish the interdependence of a number of economic variables in an open economy. In particular, the lecture demonstrates the relationships between the prices and quantities in the market for loanable funds and the prices and quantities in the market for foreign-currency exchange. Using these markets, students can analyze the impact of a variety of government policies on an economy’s

Assessment Elements

• Attendance and class participation
• Quizzes
• Final exam (1 module)
• Group project
• Final exam (2 module)

Interim Assessment

• Interim assessment (1 module)
  0.2 * Attendance and class participation + 0.4 * Final exam (2 module) + 0.2 * Group project + 0.2 * Quizzes
• Interim assessment (2 module)
  0.4 * Attendance and class participation + 0.4 * Final exam (1 module) + 0.2 * Quizzes

Bibliography

Recommended Core Bibliography

• Principles of economics, Mankiw, N. G., 2012

Recommended Additional Bibliography

• Acemoglu, D., Laibson, D. I., & List, J. A. (2016). Economics, Global Edition (Vol. Global edition). Boston: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=nlebk&AN=1419560