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?


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


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

Homework 1 due

Revealed preference

Consumer sovereignty

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


Revealed preference

Application of consumer theory: the value of food stamps


Normal, inferior, and Giffen goods

Marshallian vs. Hicksian demand

Slutsky equation

7 Income and substitution effects: the value of time Homework 2 due
8 Wrap-up and review  
  Exam 1  

Applied competitive analysis

- Market demand

- Producer and consumer surplus

- Deadweight loss

Application: The U.S. sugar program

10 Applied competitive analysis: second example  

General equilibrium in a pure exchange economy

- Edgeworth box

- Production possibility frontier

- Fundamental welfare theorems


General equilibrium continued

- Jensen "digital provide"

- Comparative advantage

Homework 3 due

General equilibrium and trade: comparative advantage vs. competitiveness

Application: The RA problem


General equilibrium and trade, applications

- The method of instrumental variables

- Does trade cause growth?


Externalities: definition, consequences and remedies

The problem of social cost: the Coase theorem

Homework 4 due

Extra credit due 3 days after Lec #15


Externalities: wrap-up

Choice under certainty: the expected utility framework

  Exam 2  

Risk and safety regulation: how insurance markets work

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


Why is information different? Imperfect information in markets

The lemons problem

Application: adverse selection, securitization and subprime lending

19 Economics of information: adverse selection and market failure in insurance markets Homework 5 due
20 Economics of information: insurance markets continued  
21 Conclusion: insurance markets, private information, and market failure  

Economics of information: signaling

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

Homework 6 due
23 Free range freakonomics: topics to be determined  
  Exam 3