Introduction to economics

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Subtitle: 
Principles of economics, economic policy and scientific method: a case-based approach

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This course introduces economics, economic policy and positive political economy to students completely new to the subject. The conversational yet precise style of this discipline is an excellent introduction to economics for tomorrow's policy makers and policy analysts. The course is designed to provide students with a solid conceptual understanding of the subject, the relevant contemporary example. It stands out among all other introductory economics subjects by emphasizing how public policy affects economic activity and how economic considerations affect the decisions of political leaders.

The course covers the most important topics of political economy, while reflecting European economic structures and institutions and adapting linguistic and cultural references to a European audience. For example, the euro is the base currency referred to in this discipline, while the case studies and examples often refer to the European political economy EU. These characteristics are evident when the discipline deals with the EU's common agricultural policy, foreign trade policy, competition policy, VAT or Eurozone monetary policy.

The approach to this discipline is eminently positive, even when discussing normative issues, such as debates about whether a lockdown should be imposed to combat an epidemic, whether residential rent prices should be capped in certain cities, or whether the VAT on food should be reduced. The positive approach of this course is grounded on two premises. On the one hand, there is no single public policy that pleases everyone, meaning there are always winners and losers from any given policy. On the other hand, political decision-makers do not need to please everyone to be able to implement their policies and remain in power, only a minimum winning coalition. As a result, obtaining a social welfare function is not only impossible but also pointless for that who wishes to understand the causes of things, whether a policy maker or a policy analyst. Therefore, in this course we do not try to promote a certain public policy agenda, but to transform normative questions into positive ones. Why do some people favor and others oppose a lockdown? Why do some people support rent control and others oppose it? Why are some in favor of reducing VAT on food while others think it is a bad idea? Why did some leaders impose lockdowns while others did not? Why do some mayors impose rent control in their cities at certain points in time? Why do some governments reduce VAT on food against the advice international organisations?

By the end of the semester, students should be able to understand the effects of public policies on makets, such as imposing a price floor, a price ceiling, a quota, a subsidy, or a tax; the causes and effects of a monopoly; macroeconomic indicators, economic growth, monetary policy and government spending. They should also be aware of political conflicts over economic policy and positive economic explanations of the policy-making process. Last but not least, they will develop some general skills that will be transferable to further studies or non-academic careers. Weekly seminar questions and discussions on important current topics will also encourage them to develop some general management skills, such as the ability to research independently, give and receive peer review, and use group to elucidate a problem.

Topics: 

1. Guns or butter: what does economics deal with? Group Decisions and Power Relations: Why Political Economy? Positive and normative statements: Hume's guillotine. Three principles of positive political economy. One: Felix qui potuit rerum cognoscere causas. Two: It never rains to everyone's liking. Three: If you think a leader is stupid, you are most likely the stupid one. Why did people disagree about COVID-19 lockdowns? (Mankiw, ch. 1-2; Krugman, ch. 1-2). 2. Supply and Demand: The only model you need to learn. Quantity and price. Marginal utility and marginal cost. Movements along a curve vs. curve shifts. Market equilibrium. Hypothesis Testing: Introduction to the Scientific Method. Occkam's razor. Why were GPU prices so expensive in the time of the pandemic? (Mankiw, ch. 4; Krugman, ch. 3). 3. Demand, supply and public policies. Price controls and rationing. Minimum wages. Why do some mayors cap rent hikes? Why do governments introduce wartime food rationing? Why did they introduce vaccine rationing during the pandemic? (Mankiw, ch. 6, pp. 111-120; Krugman, ch. 4). 4. Elasticity and its applications. Why do farmers accept EU environmental regulations? (Mankiw, ch. 5; Krugman, ch. 5). 5. Tax or fine? The two effects of a tax. Tax rate, tax base and government revenue. Elasticity and fiscal incidence. Optimal tax systems: sufficiency, efficiency and equity. A reduced VAT rate for food? Low income tax for YouTubers? Are EU competition fines a covert tax on foreign tech giants? (Mankiw, ch. 6: 120-128, ch. 8; Krugman, ch. 5). 6. International trade and protection. Tariffs, quotas and non-tariff barriers. Effects of an import tariff. Trade winners and losers. Why does the EU impose an import duty on sugar of 42c per kg? (Mankiw, ch. 3+9; Krugman, ch. 19). 7. Mid-semester review. Welfare economics vs. positive political economy. Consumer surplus, producer surplus and tax revenue. Pareto efficiency? Does it make sense to aggregate national welfare? (Mankiw, ch. 7). 8. Externalities. Pigouvian taxes, quotas and tradable pollution permits. Rivalry and excludability: private goods, public goods and common resources. The interesting case of club goods. What is our optimal class size? (Mankiw, ch. 10-11; Krugman, ch. 9). 9. Monopoly. The costs of monopoly. Economies of scale and natural monopolies. Why is the national lottery a monopoly? (Mankiw ch. 15; Krugman, ch. 8). 10. Measuring the macroeconomy. Production, growth, employment, inflation, income distribution. Is Ireland really the richest country in the EU? (Mankiw, ch. 23-24; Krugman, ch. 11). 11. Economic growth. The Harrod-Domar model. The neoclassical growth model and conditional convergence. Why is Romania growing faster than Germany? (Mankiw, ch. 25; Krugman, ch. 13). 12. Money and monetary policy. The monetary system. The money multiplier. Money Growth and Inflation. Inflation tax. Who creates money in Europe? (Mankiw, ch. 29-30; Krugman, ch. 16-17). 13. Fiscal policy. The multiplier effect. The crowding-out effect. Ricardian equivalence. The electoral business cycle: partisan and opportunistic cycles. Can a war in Ukraine prevent a recession in the US? (Mankiw, ch. 33-34; Krugman, ch. 15). 14. Introduction to public choice: group choice, collective action and institutions.

Indicative reading: 

Mankiw, N. G. (2023). Principles of economics, 10th ed. Cengage learning; Krugman, P., Wells, R. (2023). Essentials of economics, 6th ed. New York: Worth; Acemoglu, D., Laibson, D. I., & List, J. A. (2021). Economics. 3rd ed. Pearson.

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