Microeconomics for Public Policy

The course is divided into seven parts:

Part one, "Introduction," discusses some important principles of microeconomics such as people face opportunity cost or respond to incentives when they make economic choices. This part also familiarizes students with the economic way of thinking.

Part two, "How Markets Work," introduces basic microeconomic concepts and tools such as supply and demand, price mechanism, market equilibrium, which are widely used in policy analysis.

Part three, "Consumer Theory," studies how rational consumers behave under certainty. This part also studies how people make choices under uncertainty. This part ends with a wide range of theory applications to real-life problems.

Part four, "Producer Theory," discusses the behavior of firm – the representative of the production sector. This part will discuss production theory, production cost theory, profit maximization objective, and derives the supply curves for individual firms and markets in perfectly competitive markets. This part will end with some beginning lessons regarding game theory.

Part five, "Market of production factors" analyzes input factors, specifically capital and labor. How labors make decision on work and working time given the opportunity costs from forgone forgone jobs or leisures time. This part also talks about determinant factors of wage levels to labors and the role of productivity in improving labor's income and living standards.

Part six, "Competitive Markets, Equity and Efficiency," starts with an observation that outcomes of perfectly competitive market are economically efficient, but not equitable. It then goes on to discuss the trade-off between efficiency and equity, which is a key issue of microeconomics and is directly related to policy analysis.

Part seven, "Introduction to Market Failures and role of government," discusses common market failures. In general, market may fail under following conditions: (i) monopolistic power, (ii) asymmetric information among the participants in the market; (iii) externalities (negative or positive); and (iv) public goods. Some concepts and basic understanding of game theory will be introduced in this part.