Part I. Themes: Theory, Causal Tests, Evidence and a First Application
1. The Consequences of Minimum Wage Laws for Earnings and Employment
- What is 14.03/14.003 about?
- Application: minimum wages 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?
2. Testing Theory: The Fundamental Problem of Causal Evidence
- The fundamental problem of causal inference (FPCI)
- The Rubin causal model (RCM)
- Experiments and the RCM
- Quasi-experiments in economics
- The method of difference-in-differences (DD)
Part II. The Foundation of Economic Theory: Consumer Preference, Choice, Optimization and Demand
3. Introducing Consumer Theory: The Foundation of Microeconomics (and Minimum Wage Wrap-Up)
- Minimum wage wrap-up
- The axioms of consumer theory
- Existence of a utility function
- Properties of utility functions
- Cardinality versus ordinality
- Monotone transformations
4–5. Consumer Sovereignty: The Carte Blanche Principle and Health Insurance Demand
- Utility maximization and constrained optimization
- The indirect utility function
- Expenditure minimization and the expenditure function
- Relationship between expenditure and indirect utility functions
- Applications of consumer theory
- The regression discontinuity method
6. From Preferences to Demand Curves
- Where demand curves come from
- Uncompensated (“Marshallian”) demand
- Compensated (“Hicksian”) demand
- Relationship between indirect utility function, expenditure function, and demand functions
7. Income Effects, Substitution Effects, and the Design of Anti-Poverty Programs
- Normal, inferior, and Giffen goods
- Incentivizing work: labor supply and the Earned Income Tax Credit
8. Income, Substitution, and Subsistence
- Connecting compensated and uncompensated demand curves: the Slutsky equation
- Testing the theory: rice and noodle subsidies in China
9. Consumer Theory Wrap-Up
Exam #1
10. Applied Competitive Analysis: The Incidence of a Tax
- Aggregating individual to market demands
- Producer and consumer surplus in competitive equilibrium
- Distinguishing deadweight losses from transfers
- Application: tax incidence
11. Applied Competitive Analysis: Free Entry in a Cartelized Market
- Applied competitive analysis
12. Putting Markets Together: The Edgeworth Box
- General equilibrium in a pure exchange economy: the Edgeworth box
- Contract curves
- Gains from trade between consumers
- The fundamental welfare theorems
13. The Gains from Market Integration: “The Digital Provide”
- The principle of arbitrage
14.International Trade and Comparative Advantage
- Why do countries gain from trade?
- The principle of comparative advantage
- Where does comparative advantage come from?
- Example: the RA problem
15. Does Trade Raise National Income?
- How do we even test this question?
- The method of instrumental variables (IV) [also known as two stage least squares, 2SLS]
16. The Free Trade Dilemma
- Why trade is not Pareto-improving
- Redistributive effects of trade: evidence
Part IV. Market Failures: Externalities, Risk, and Moral Hazard and Adverse Selection
17. Externalities: Definition, Consequences, and Remedies
- Externalities: definition, consequences and remedies
- The problem of social cost: the Coase theorem
Exam #2
18. Risk and Safety Regulation: Hockey Helmets, etc.
19. Adverse Selection
20. Adverse Selection, Moral Hazard, and Subprime Lending
- Application: moral hazard, securitization, and subprime lending
Part V. Prediction, Learning, Decision, and Discrimination
21. Discrimination in Labor Markets: Banning the Box
- Statistical discrimination: definition and logic
- Discrimination, prejudice, and “ban the box” regulations
22. Guest Lecture: Prof. Marzyeh Ghassemi of MIT CSAIl and EECS, “The Pulse of Ethical Machine Learning in Health”
23. Prediction, Machine Learning, and Decision-Making
- End of life care: doctors versus algorithms
- Algorithmic discrimination
24. Artificial Intelligence, Discrimination, and Competition in Housing Markets
- The surprising consequences of algorithmic decision-making for market competition and housing
discrimination
