Bachelor 2020/2021

Introduction to Economics

Type: Compulsory course (HSE University and Kyung Hee University Double Degree Programme in Economics and Politics 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, 1-4 module

Mode of studies: distance learning

Instructors: Ivan Deseatnicov

Language: English

ECTS credits: 6

Contact hours: 120

Course Syllabus

Abstract

It is an introductory course in microeconomics and macroeconomics, which introduces the basic concepts of economics. Microeconomics (Introduction to Economics I) discusses applications-the study of how individuals make a decision and interact in markets, under conditions of perfect and imperfect competition. The study of macroeconomics (Introduction to Economics II) involves economy-wide issues such as inflation, unemployment, economic growth and policies.

Learning Objectives

• To introduce the key principles of economics
• To examine the theories of microeconomics and macroeconomics, and how they are applied in the real world
• To develop critical thinking and problem-solving skills of students
• To create a strong understanding of economics that will serve as a foundation for further studies of the students

Expected Learning Outcomes

• 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: 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: 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: 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 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 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: 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: 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 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: why some markets have only one seller; how a monopoly determines the quantity to produce and the price to charge; how the monopoly’s decisions affect economic well-being; why monopolies try to charge different prices to different customers; the various public policies aimed at solving the problem of monopoly.
• 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 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: 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: 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: why private markets fail to provide public goods; some of the important public goods in our economy; why the cost–benefit analysis of public goods is both necessary and difficult; why people tend to use common resources too much; some of the important common resources in our economy.
• 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.
• 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 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: 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: 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 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: 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: 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: 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: 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: why policymakers face a short-run trade-off between inflation and unemployment; why the inflation-unemployment trade-off disappears in the long run; how supply shocks can shift the inflation-unemployment trade-off; the short-run cost of reducing inflation; how policymakers’ credibility might affect the cost of reducing inflation.
• 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 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

Course Contents

• Introduction of the course
  • Ch1. Ten Principles of Economics  How people make decisions  How people interact  How the Economy as a whole works • Ch2. Thinking like an Economist  The economist as a scientist  The economist as a policy advisor
• Interdependence and the Gains from Trade
   A parable for the modern Economy  Comparative advantage: The driving force of specialization
• The Market Forces of Supply and Demand
   Markets and competition  Demand  Supply  Supply and demand together
• Elasticity and its Application
   The elasticity of demand  The elasticity of supply
• Supply, Demand and Government Policies
   Control on prices  Taxes
• Consumers, Producers and the Efficiency of Markets
   Consumer surplus  Producer surplus  Market efficiency
• The Theory of Consumer Choice
   The budget constraint: what the consumer can afford  Preferences: what the consumer wants  Optimization: what the consumer chooses  Three applications
• The Costs of the Production
   What are the costs?  Production and costs  The various measures of costs  Costs in the short run and in the long run
• Firms in Competitive Markets
   What is a competitive market?  Profit maximization and the competitive firm’s supply  The supply curve in a competitive market
• Monopoly
   Why monopolies arise  How monopolies make production and pricing  The welfare cost of monopolies  Price discrimination  Public policy toward monopolies
• Monopolistic Competition / Oligopoly
  • Ch16. Monopolistic Competition  Between Monopoly and perfect competition  Competition with differentiated products  Advertising • Ch17. Oligopoly  Markets with only a few sellers  The economics of cooperation  Public policy toward oligopolies
• Oligopoly
   The economics of cooperation  Public policy toward oligopolies
• The Markets for the Factors of Production
   The demand for labor  The supply for labor  Equilibrium in the labor market  The other factors of production: land and capital
• Externalities / Public Goods and Common Resources
  • Ch10. Externalities  Externalities and market inefficiency  Public policies towards externalities  Private solutions to externalities • Ch11. Public Goods and Common Resources (if time permits)  The different kinds of goods  Public goods  Common resources
• Measuring a Nation’s Income
  Topics - What is Gross Domestic Product (GDP)? - How is GDP related to a nation’s total income and spending? - What are the components of GDP? - How is GDP corrected for inflation? - Does GDP measure society’s well-being?
• Measuring the Cost of Living
  Topics - What is the Consumer Price Index (CPI)? - How is it calculated? What’s it used for? - What are the problems with the CPI? How serious are they? - How does the CPI differ from the GDP deflator? - How can we use the CPI to compare dollar amounts from different years? Why would we want to do this, anyway? - How can we correct interest rates for inflation?
• Production and Growth
  Topics - What are the facts about living standards and growth rates around the world? - Why does productivity matter for living standards? - What determines productivity and its growth rate? - How can public policy affect growth and living standards?
• Saving, Investment, and the Financial System
  Topics - What are the main types of financial institutions in the U.S. economy, and what is their function? - What are the three kinds of saving? - What’s the difference between saving and investment? - How does the financial system coordinate saving and investment? - How do government policies affect saving, investment, and the interest rate?
• The basic tools of Finance
  Topics - 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.
• Unemployment
  Topics - How is unemployment measured? - What is the “natural rate of unemployment”? - Why are there always some people unemployed? - How is unemployment affected by unions and minimum wage laws? - What is the theory of efficiency wages, and how does it help explain unemployment?
• The Monetary System
  Topics - What assets are considered “money”? What are the functions of money? The types of money? - What is the Federal Reserve? - What role do banks play in the monetary system? How do banks “create money”? - How does the Federal Reserve control the money supply?
• Money Growth and Inflation
  Topics - How does the money supply affect inflation and nominal interest rates? - Does the money supply affect real variables like real GDP or the real interest rate? - How is inflation like a tax? - What are the costs of inflation? How serious are they?
• Aggregate Demand and Aggregate Supply
  Topics - What are economic fluctuations? What are their characteristics? - How does the model of aggregate demand and aggregate supply explain economic fluctuations? - Why does the Aggregate-Demand curve slope downward? What shifts the AD curve? - What is the slope of the Aggregate-Supply curve in the short run? In the long run? What shifts the AS curve(s)?
• The Influence of Monetary and Fiscal Policy on Aggregate Demand
  Topics - How does the interest-rate effect help explain the slope of the aggregate-demand curve? - How can the central bank use monetary policy to shift the AD curve? - In what two ways does fiscal policy affect aggregate demand? - What are the arguments for and against using policy to try to stabilize the economy?
• The Short-Run Tradeoff Between Inflation and Unemployment
  Topics - How are international flows of goods and assets related? - What’s the difference between the real and nominal exchange rate? - What is “purchasing-power parity,” and how does it explain nominal exchange rates?
• Open-Economy Macroeconomics: Basic Concepts
  Topics - How are international flows of goods and assets related? - What’s the difference between the real and nominal exchange rate? - What is “purchasing-power parity,” and how does it explain nominal exchange rates?
• A Macroeconomic Theory of the Open Economy
  Topics - In an open economy, what determines the real interest rate? The real exchange rate? - How are the markets for loanable funds and foreign-currency exchange connected? - How do government budget deficits affect the exchange rate and trade balance? - How do other policies or events affect the interest rate, exchange rate, and trade balance?
• Q&A session

Assessment Elements

• Assignments - Group work
• Assignments - Quizzes
• Midterm test
• Attendance and Participation
• Final Exam
  Platforms: Zoom, Socrative и Gradescope (in the 2 module)
• Assignments - Group Work
• Assignments - Quizzes
• Attendance and Participation
• Midterm test
• Final Exam
  This is a written exam. The exam is held on the Socrative platform (https://b.socrative.com/login/student/). Students have to join the exam 15 minutes before the start. For participating in the exam the student is obliged to turn on the camera. During the exam students are forbidden to: correspond in the messenger, use the Internet. During the exam students are allowed to: use notes and textbooks. A short-term communication disruption during the exam is considered a communication disruption of less than 3 minutes. Long-term communication disruption during the exam is considered a communication disruption for more than 10 minutes. In the case of a long-term communication disruption the student cannot continue the exam. The make-up procedure is similar to the exam procedure.

Interim Assessment

• Interim assessment (2 module)
  0.1 * Assignments - Group work + 0.1 * Assignments - Quizzes + 0.1 * Attendance and Participation + 0.4 * Final Exam + 0.3 * Midterm test
• Interim assessment (4 module)
  0.1 * Assignments - Group work + 0.1 * Assignments - Quizzes + 0.1 * Attendance and Participation + 0.4 * Final Exam + 0.3 * Midterm test

Bibliography

Recommended Core Bibliography

• Principles of economics, Case, K. E., 2016

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