Course Meeting Times
Lecture: 2 sessions / week; 1.5 hours / session
Recitations: 1 session / week; 1 hour / session
This is an intermediate course in microeconomic theory and its application to real-world phenomena and policy problems. The class assumes proficiency with economic theory at the level of 14.01 Principles of Microeconomics as well as multivariable calculus. It is also quite helpful if you have taken some linear algebra, statistics, or econometrics and are somewhat familiar with basic notions of algorithms and computing, but for those who are not familiar with these additional tools, the teaching assistants will provide a primer or fill in gaps for this material.
This course provides an introduction to theory and data designed to meet the needs of students interested in economic science. It provides an introduction to consumer choice, the theory of the firm, and general equilibrium models, with an overview of the main results and tools used in studying these topics, both directly in economics and indirectly in various other fields. This includes analysis of consumer and producer decisions, partial and general equilibrium analysis, insurance, the welfare theorems and failures of these theorems as with externalities but with resolutions, contract theory and mechanism design, policy analysis, the content of theory for data, and the design of media of exchange as with Bitcoin and markets made possible by distributed ledgers.
If you’ve had an economics class before, you’re probably used to the following drill: learn some theory; if time permits, consider some stylized evidence that may or may not test the theory; repeat. That’s not what we’ll be doing in 14.04. The purpose of theory is to help us to think about how the world actually works. We’re going to test theories and learn from these tests, both when the data confirm the theory and when they reject it. John Maynard Keynes wrote, “Economics is a science of thinking in terms of models, joined to the art of choosing models which are relevant.”
The Econometric Society and the Cowles Foundation framed economics as a science running in the laboratory of model economies. So, we are interested in inference, how to measure, how to estimate models, how to make welfare statements for actual policies as implemented and counterfactual policies which might be undertaken.
In sum, the class is organized around two intertwined themes:
- Economic theory: What does it predict, and in what ways is it useful?
- Empirical applications: Economic theory is a way of organizing facts and interpreting patterns in the world. This class will use data to test theory and use theory to interpret data.
This is not a by-the-book micro-theory class. A significant portion of the class will focus on applications from empirical and theoretical papers, often combined. It will be difficult to master this material unless you attend both the lectures and recitations, either synchronously or asynchronously.
Laptop/Tablet/Phone Use During Class
I strongly discourage you from texting, tweeting, emailing, blogging, posting, browsing, Instagramming, Googling, shopping, etc., during class. It wastes your class-time—since you won’t learn anything during lecture if you’re distracted. I’m sympathetic to your desire to use your laptop or tablet to view the online lecture notes and take notes of your own. I would encourage you instead to print out the online lecture notes the night before class, and to write your notes directly on the paper lecture notes. In my experience, it’s still faster and more accurate to take notes in class using paper and pen than to mark up a PDF file on your device.
The class is not graded on a curve. It’s possible for everyone to do well, and I’d be happy to have a reason to assign mostly A’s. Under Emergency grading (due to the pandemic), letter grades will be at the levels of A, B, or C, and grades of D/NE or F/NE will not appear on any external records. If I assess that your performance in the class is of concern (C or lower), I will try to warn you before the drop date.
Here are the grading mechanics:
- Best four out of five problem set grades: 30%
- Three exams: 60%
- Course participation: 10%
Problem Sets (30%)
I will assign five problem sets. Problem sets typically include a set of pure theory questions and a set of application questions, often based on readings. Late problem sets will not be accepted. No exceptions.
After the problem set has been graded and handed back, we are happy to go over solutions with you if they are still unclear. Visit the Assignments section for more information.
Three Exams (60%)
There will be two exams of 80 minutes in length. There will also be a final exam during the finals period. You will have 120 minutes to complete the final.
Performance on exams is highly correlated with performance on problem sets. If you miss an exam for an excused reason, I will offer a written makeup or an oral exam on a whiteboard online. Students typically find oral exams painful. But, I will not write a new exam for only a few students—so, an oral exam is likely. Visit the exams section for more information.
Class Participation (10%)
You are encouraged to participate in this course actively, either in class or on the class forum, ideally both. Please ask questions to make sure you understand the lecture materials. Class forum participation is encouraged for all students. Forum participation will be especially important for students who are unable to participate in class live due to time zone differences or other obstacles to class participation. You will not be penalized if you are unable to attend class live because of these obstacles. You are strongly encouraged to not only ask questions on the class forum, but also to provide helpful answers to the questions of your classmates. If you participate regularly in one way or another, I will learn your name and count your participation towards your grade. Though course participation counts only 10%, from past experience this component has a lot of variation across students and matters significantly for final grades.