Readings

[IEA] = Amazon logo McAfee, R. Preston, and Tracy R. Lewis. Introduction to Economic Analysis. R. Preston McAfee, 2006. ISBN: 9781600490002.

LEC # TOPICS READINGS
1

Introduction: what 14.03/14.003 is all about

Application 1: minimum wage and employment: theory and evidence

- Minimum wage and employment in the standard competitive model

- Minimum wage and employment in monopsony model

- How can we empirically distinguish these cases?

Recommended

Amazon logo Binger, Brian R., and Elizabeth Hoffman. Microeconomics with Calculus. 2nd ed. Addison-Wesley, 1998. ISBN: 9780321012258. Chapters 1-3. This is the best introduction to basic mathematical tools for economists that I have seen.

[IEA], Chapter 15.1 and 15.2 Monopoly

2

Continuation of minimum wage and employment: theory and evidence

- The problem of causal inference—fundamental

- The Rubin causal model (RCM)

- Experiments and the RCM

- Quasi-experiments in economics

- The difference-in-difference setup

- Card and Kreuger: what they did, what they found

Overview of class and themes:

- Why bother with economic theory?

- Causality: what do we mean? How do we know it when we see it?

- Experiments and quasi-experiments in economics

Holland, Paul W. "Statistics and Causal Inference." Journal of the American Statistical Association 81, no. 396 (1986): 945-60.

Card, David, and Alan B. Krueger. "Minimum Wages and Employment: A Case Study of the Fast-food Industry in New Jersey and Pennsylvania." American Economic Review 84, no. 4 (September 1994): 772-93.

Freeman, Richard. "Comment: Review Symposium on Myth and Measurement: The New Economics of the Minimum Wage." Industrial and Labor Relations Review 48, no. 4 (July 1995).

3

Introduction to consumer theory

- The axioms of consumer theory

- Existence of a utility function

- Properties of utility function

- Cardinality vs. ordinality

- Monotone transformations

Utility maximization and constrained optimization

- Utility maximization

- Expenditure minimization

Recommended

[IEA], Chapter 12.1-12.4 Consumer Theory, and chapter 13 Applied Consumer Theory

4

Revealed preference

Consumer sovereignty

Applications of consumer theory: lump-sum vs. in-kind transfers, price changes and consumer surplus

Waldfogel, Joel. "The Deadweight Loss of Christmas." American Economic Review 83, no. 5 (1993): 1328-36.
5

Revealed preference

Application of consumer theory: the value of food stamps

Whitmore, Diane. "What Are Food Stamps Worth?" Princeton Industrial Relations Section Working Paper, no. 468, July 2002. (This resource may not render correctly in a screen reader.PDF)
6

Normal, inferior, and Giffen goods

Marshallian vs. Hicksian demand

Slutsky equation

Jensen, Robert, and Nolan Miller. "Giffen Behavior and Subsistence Consumption." American Economic Review 98, no. 4 (2008): 1553-1577.

Recommended

[IEA], Chapter 12.5-12.7 Consumer Theory

7 Income and substitution effects: the value of time Miller, Grant, and B. Piedad Urdinola. "Cyclicality, Mortality, and the Value of Time: The Case of Coffee Price Fluctuations and Child Survival in Colombia." Journal of Political Economy 118, no. 1 (2010): 113-155.
8 Wrap-up and review  
9

Applied competitive analysis

- Market demand

- Producer and consumer surplus

- Deadweight loss

Application: The U.S. sugar program

Scherer, F. M. "The U.S. Sugar Program." Kennedy School of Government Case 1128.0, 1992.

"Harvesting Poverty: America's Sugar Daddies." Editorial page. New York Times, November 29, 2003.

Malkin, Elizabeth. "In Mexico, Sugar vs. U.S. Corn Syrup." New York Times, June 9, 2004.

American Sugar Alliance. "Trade Talks in Works Could Devastate U.S. Sugar Industry." October 9, 2003.

American Sugar Alliance. "New Global Study Confirms Americans Pay Less for Sugar." February 21, 2003.

Van Driessche, Ray. "Sugar is Not Expensive." USA Today, May 23, 2000.

10 Applied competitive analysis: second example Moretti, Enrico, and Chang-Tai Hsieh. "Can Free Entry be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry." Journal of Political Economy 111, no. 5 (2003): 1076-1122.
11

General equilibrium in a pure exchange economy

- Edgeworth box

- Production possibility frontier

- Fundamental welfare theorems

Jensen, Robert. "The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector." Quarterly Journal of Economics 122, no. 3 (2007): 879-924.

Recommended

[IEA], Chapter 14 General Equilibrium

12

General equilibrium continued

- Jensen "digital provide"

- Comparative advantage

 
13

General equilibrium and trade: comparative advantage vs. competitiveness

Application: The RA problem

Krugman, Paul. "The Accidental Theorist." Slate, January 23, 1997.

———. "Ricardo's Difficult Idea." Paper for Manchester Conference on Free Trade (March 1996).

Kristof, Nicholas D. "Let Them Sweat." New York Times, June 25, 2002.

Recommended

Krugman, Paul. "Competitiveness: A Dangerous Obsession." Foreign Affairs 73, no. 2 (1994): 28-44.

14

General equilibrium and trade, applications

- The method of instrumental variables

- Does trade cause growth?

Feyrer, James. "Trade and Income: Exploiting Time Series in Geography." NBER Working Paper No. 14910, April 2009.

Recommended

[IEA], Chapter 6 Trade

15

Externalities: definition, consequences and remedies

The problem of social cost: the Coase Theorem

Greenstone, Michael, and Kenneth Y. Chay. "The Impact of Air Pollution on Infant Mortality: Evidence from Geographic Variation in Pollution Shocks Induced by a Recession." Quarterly Journal of Economics 118, no. 3 (2003): 1121-1167.

Recommended

Bergstrom, Theodore. "Lecture 5: Externalities." UC Santa Barbara, March 2002.

[IEA], Chapter 7 Externalities

16

Externalities: wrap-up

Choice under certainty: the expected utility framework

Newman, Thomas P., Brian D. Johnston, and David C. Grossman. "Effects and Costs of Requiring Child-Restraint Systems for Young Children Traveling on Commercial Airplanes." Archives of Pediatric Adolescent Medicine 157 (2003): 969-974.

Recommended

[IEA], Chapter 13.4 Risk Aversion

17

Risk and safety regulation: how insurance markets work

Application: using revealed preference to place a monetary value on life

Ashenfelter, Orley, and Michael Greenstone. "Using Mandated Speed Limits to Measure the Value of a Statistical Life." Journal of Political Economy 112, no. 1 (2004): S226-67.
18

Why is information different? Imperfect information in markets

The lemons problem

Application: adverse selection, securitization and subprime lending

Akerlof, George A. "The Market for 'Lemons:' Quality Uncertainty and the Market Mechanism." Quarterly Journal of Economics 84, no. 3 (1970): 488-500.

Keys, Benjamin J., Tanmoy Mukkerjee, Amit Seru, and Vikrant Vig. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans." Quarterly Journal of Economics 125, no. 1 (2010): 307-362.

Recommended

[IEA], Chapter 16 Games and Strategic Behavior, chapter 18 Information, and chapter 19 Agency Theory

19 Economics of information: adverse selection and market failure in insurance markets

Rothschild, Michael, and Joseph E. Stiglitz. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Information." Quarterly Journal of Economics 90, no. 4 (1976): 630-49.

Einav, Liran, and Amy Finkelstein. "Selection in Insurance Markets: Theory and Empirics in Pictures." Journal of Economic Perspectives, forthcoming.

20 Economics of information: insurance markets continued Finkelstein, Amy, and Kathleen McGarry. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market." American Economic Review 96, no. 4 (2006): 938-958.
21 Conclusion: insurance markets, private information, and market failure  
22

Economics of information: signaling

- Explanations for the economic return to schooling: human capital vs. job market signaling

Spence, Michael. "Job Market Signaling." Quarterly Journal of Economics 87, no. 3 (1973): 355-74.
23 Free range freakonomics: topics to be determined Tyler, John H., Richard J. Murnane, and John B. Willet. "Estimating the Labor Market Signaling Value of the GED." Quarterly Journal of Economics 115, no. 2 (2000): 431-68.