Understanding Economic Systems

Professor: Armour and Smith
Units: 1.5 (over two quarters)
Core Course

Economic models provide a tool for anticipating the consequences of policy decisions and evaluating their effectiveness. These models are used in the analysis of traditional economic issues like compensation policy and minimum wages as well as the analysis of health care, education, law, and other areas. This course provides a background in microeconomic theory that is used in policy analysis. The main topics are consumer theory, theory of the firm, and partial equilibrium analysis.

This course also explores the concepts of market equilibrium and market failure. It begins by developing the techniques necessary for understanding equilibrium in a complex economy with many simultaneously operating markets, and the methods economists use to evaluate policy in this context. Specific topics will include public goods, externalities, the economics of property rights and legal institutions, and the fundamental welfare theorems.

The second half of the course will be devoted to understanding the economics of information, and the way in which information flows govern economic equilibrium. Specifically, we will explore situations of asymmetric information, adverse selection, moral hazard, uncertainty, and insurance.