Course Contents:
Economy in the very Long run – Economic Growth: Harrod-Domar model, Solow Growth Model, Golden rule of Capital Accumulation, Solow growth models with growth in population and technical progress, Growth Accounting, Cross-country growth and convergence
Economy in the Long run – Classical Model: Production and Output, Labor Market, Money Market (Quantity Theory of Money), Classical Dichotomy - Money neutrality
Economy in the short run – Business Cycles: Building the IS-LM model, Aggregate Demand, Aggregate Supply and the Philips curve, Aggregate demand-Supply (AD-AS) models, Fiscal and Monetary Policies
Micro-foundations: Theories of Consumption – Inter-temporal Choice and Consumption, Keynesian Consumption theory, Life Cycle Hypothesis, Permanent Income Hypothesis, Random Walk Hypothesis, Behavioral Consumption theories. Theories of Investment, Theories of Money Demand
Course Contents:
Rational decision making, utility function and the case of uncertainty: preference relations, rationality, existence of utility functions, rational choice paradigm, uncertainty, lotteries, von Neumann-Morgenstern expected utility function, decision making under uncertainty, value of information.
The definition of a game, complete information, static games: normal-form games, pure strategies, mixed strategies, examples of games like prisoner’s dilemma, rock-paper-scissors, Cournot duopoly, dominated strategies, beliefs, best responses, solutions concepts like iterated elimination of strictly dominated pure strategies, rationalizability.
Nash equilibrium in pure and mixed strategies: definition of Nash equilibrium in pure and mixed strategies, existence of Nash equilibrium, Cournot duopoly, Bertrand duopoly, median voter theorem.
Extensive-form games, game trees, subgame perfect Nash equilibrium: perfect and imperfect information, mixed and behavioral strategies, game trees, sequential rationality, backward induction, subgame perfect Nash equilibrium, centipede game, Stackelberg competition, finitely and infinitely repeated games, the folk theorem, strategic bargaining, contracts
Incomplete information, Bayesian games: Player’s preference type, common prior, static and dynamic games of incomplete information, Bayesian Nash equilibrium, perfect Bayesian equilibrium, sequential equilibrium, adverse selection and signaling, auctions.
Introduction to the definition and concepts of Economics: definitions of economics; scarcity and efficiency; microeconomics and macroeconomics; positive and normative economics; market, command and mixed economies, laissez-faire; opportunity costs; marginal concept; input-output and production possibility frontier; interdependence and gains from trade; posthoc fallacy, ceteris paribus principle, fallacy of composition; economic growth, unemployment, inflation
Demand, supply and equilibrium, elasticity and its applications: demand schedule and the law of demand; determinants of household demand, income and prices; normal and inferior goods; substitutes and complements; shifts of demand curves; market demand; supply schedule and the law of supply; determinants of supply, factors of production, cost of production and technology; shifts of supply curves; market supply; excess demand, excess supply and market equilibrium; changes in equilibrium due to shifts in demand and supply curves; price elasticity of demand; elastic and inelastic demand; the midpoint formula for calculating elasticity; elasticity and total revenue; determinants of demand elasticity, substitutes and complements; income elasticity of demand; cross-price elasticity of demand; elasticity of supply; elasticity of labor supply; applications of elasticity with some examples like impact of tax on equilibrium price and quantity, minimum floors and maximum ceilings etc.
Consumer behavior and utility maximization/expenditure minimization, the production process and cost minimization/profit maximization, the costs of production: budget constraint/line, budget set; preferences or tastes; changes in budget line due to change in prices or income; utility function, marginal utility, law of diminishing marginal utility; utility maximization subject to budget constraint; diminishing marginal utility and downwardsloping demand; income and substitution effects; profit, total revenue, total cost; profit maximization, market prices of output, production technology (labor intensive or capital intensive production technology), prices of inputs; total product, marginal product and average product; law of diminishing returns; constant, increasing and decreasing returns to scale; short run and long run production decisions; productivity and economies of scale; nature of the firm, individual proprietorship, partnership and limited liability partnership, corporation; ownership, control and executive compensation in firms; profit maximization/cost minimization; total and average fixed cost, total and average variable cost; total cost, average cost and marginal cost in the short-run and in the long-run; output decisions in the short-run and in the long-run.
Perfectly competitive markets, markets and welfare, externalities and market inefficiency, public goods, the design of the tax system, imperfect competition: competitive market, perfect competition; supply behavior of the competitive firm, total cost and the shutdown condition; short-run and long-run competitive equilibrium; efficiency (Pareto) of competitive equilibrium, welfare of market participants, consumer surplus, producer surplus, the deadweight loss of taxation, the Laffer curve; international trade, the winners and losers from trade, the effects of tariffs, the arguments for restricting trade; externalities, positive and negative externalities, public policies towards externalities like market based policies of corrective taxes and subsidies, tradable pollution permits, private solutions to externalities, the Coase theorem; public (social) goods and private goods, common resources, the free rider problem, the tragedy of the Commons; taxes and inefficiency, taxes and equity, the benefits principle, the ability to pay principle, vertical equity, horizontal equity, the tradeoff between equity and efficiency, tax incidences and optimal taxation; monopoly, the welfare costs of monopolies, price discrimination, public policy towards monopolies, monopolistic competition, product differentiation, advertising, oligopoly, the economics of cooperation, public policy towards oligopolies, antitrust policy.
The labor market, and other factors of production, income inequality and poverty: factor incomes, personal income, the nature of factor demands, the demand and supply of factors of production, real wage, demand and supply of labor, determinants of supply, wage differentials, labor quality, the economics of labor unions, economic analysis of labor discrimination; the capital market, physical or tangible capital, social capital or infrastructure, intangible capital, human capital, investment and depreciation, interest rate, bonds and stocks, mortgages and the mortgage market, the demand for new capital and investment decision; land markets, rent and value of output produced on land; utilities possibilities frontier, sources of household income, minimum wage, unemployment, the distribution of income, income inequality, Lorenz curve and the Gini coefficient, causes of increased inequality, poverty and poverty line, the redistribution debate, redistribution programs and policies.