Basic Concepts in Economics
Basic Concepts in Economics
1. Wants:
Want may be defined as an insatiable desire or need by human beings to own goods or services that give satisfaction. In economics, wants are unlimited while the means of acquiring them (resources) are limited.
2. Scarcity:
Scarcity is defined as a limited supply of resources which are used for the satisfaction of unlimited wants. This means that people do not have as much as they desire. The problem of scarcity arises as a result of the fact that, at any point in time, the productive resources available in any society are limited, whereas human wants are unlimited. Scarcity is the central problem of every society.
3. Choice:
This is defined as a system of selecting one out of a number of alternatives. Choices become necessary as a result of scarcity. Making a choice implies giving up something in order to get something else. The concept of choice relates to all the three main economic agents.
An individual consumer must choose among types of goods and services because of his limited income.
The firm must choose what to produce and how to produce within the constraint imposed by its limited resources.
The government must decide what public goods and services to provide for the people given its limited revenue as projected in the budget documents.
4. Scale of Preference:
It is described as a list of all wants to be satisfied in order of priority or importance. The concept of ‘Scale of Preference’ underscores the basic assumption in economics that every economic agent exhibits rational behaviour in the process of making a choice.
5. Opportunity Cost:
Economists use the term ‘opportunity cost’ to mean the next best alternative forgone in the process of making a choice. To an individual consumer, the opportunity cost of a commodity bought is the next most desirable commodity he could have bought instead. For example, Alex has ₦50 and wants to buy Gala and Cake but discovers that he cannot get both with the amount has because each item costs ₦50. If he chooses to buy the cake, the gala he sacrifices, because of limited resources, is the forgone alternative and this is what is referred to as opportunity cost. Opportunity cost is alternatively referred to as alternative forgone, real cost, true cost, or economic cost.
6. Rationality:
In economics, rationality simply means that individuals will always pick the best option when making choices. This means an individual exercises sensible choice making in which he gains optimum benefit.
7. Production:
Production is a process of combining various material and immaterial inputs in order to make something for consumption (output). In ordinary sense, it means creation of a commodity. But, in economics, that is a wrong view. The carpenter who gives shape to wood makes it more useful to us than it used to be. This means he creates additional utility. So, production in economics is not just the creation of a commodity but also the creation of new utility.
8. Distribution:
In simple words, distribution implies the act of giving everyone a share of their labour. Therefore, the concept of distribution in economics is concerned with the allocation of total production among the various factors of production as a reward in form of rent, wages, interest or profit. 9. Consumption: Consumption, in economics, is the use of goods and services by individuals. It is best described as the final purchase of goods and services by individuals. The purchase of new clothes, ice-cream at Coldstone Creamery, a car, etc. are all examples of consumption.
Principles of health economics including: the notions of scarcity, supply and demand, distinctions between need and demand, opportunity cost, discounting, time horizons, margins, efficiency and equity
From a Public Health point of view, health economics is just one of many disciplines that may be used to analyse issues of health and health care, specifically as one of the set of analytical methods labelled Health Services Research. But from an economics point of view, health economics is simply one of many topics to which economic principles and methods can be applied. So, in describing the principles of health economics, we are really setting out the principles of economics and how they might be interpreted in the context of health and health care. As Morris, Devlin Parkin and Spencer (2012) put it: Health economics is the application of economic theory, models and empirical techniques to the analysis of decision-making by individuals, health care providers and governments with respect to health and health care.
There are many different definitions of economics, but a definition given in a popular introductory textbook (Begg, Fischer and Dornbusch, 2005) is instructive: The study of how society decides what, how and for whom to produce. In analysing these issues, health economics attempts to apply the same analytical methods that would be applied to any good or service that the economy produces. However, it also always asks if the issues are different in health care.
1.1 Production, resources, scarcity and opportunity cost
The definition of economics above includes the term to produce, emphasising that economics deals with both health and health care as a good or service that is manufactured, or produced. All production requires the use of resources such as raw materials and labour, and we can regard production as a process by which these resources are transformed into goods:
The inputs to this productive process are resources such as personnel (often referred to as labour), equipment and buildings (often referred to as capital), land and raw materials. The output of a process using health care inputs, such as health care professionals, therapeutic materials and clinics, could be an amount of health care of a given quality that is provided, for example. How inputs are converted into outputs may be affected by other mediating factors, for example the environment in which production takes place, such as whether the clinic is publicly or privately owned.
A key observation of economics is that resources are known to be limited in quantity at a point in time, but there are no known bounds on the quantity of outputs that is desired. This both acts as the fundamental driving force for economic activity and explains why health and health care can and should be considered like other goods. This issue, known as the problem of scarcity of resources means that choices must be made about what goods are produced, how they are to be produced and who will consume them. Another way to view this is that we cannot have all of the goods that we want, and in choosing the goods that we will have, we have to trade off one good for another.
The term economic goods is sometimes used to describe goods and services for which economic analysis is deemed to be relevant. These are defined as goods or services that are scarce relative to our wants for them. Health care is such an economic good: first, because the resources used to provide it are finite and we can only use more of these resources to create health care if we divert them from other uses; and secondly, because society’s wants for health care, that is what society would consume in the absence of constraints on its ability to pay for it, have no known bounds. Nowhere in the world is there a health care system that devotes enough resources to health care to meet all of its citizens’ wants.
Of course, in a national health system, it is likely that the aim is to meet needs rather than wants; this distinction is discussed below. But it is also the case that meeting one need may mean that another need is not met and that no-one has discovered a limit to need.
To summarise: in the economy as a whole, there are not enough scarce resources to meet all of the wants that people have, so we have to choose which wants are met and which are not met; in the health care system there are not enough health care resources to meet all of the health needs that people have, so we have to choose which needs are met and which are not met.
An assertion of economics is that scarcity, and the resulting necessity to choose between different uses for productive resources, applies everywhere in an economy and cannot be avoided. This is the premise underlying a key economics concept called opportunity cost. Producing any economic good or service means that the scarce resources that are used to create it cannot be used to produce other goods or services. If those other goods or services had been produced, they would have generated benefits to those who consumed them. The true cost of producing a good or service is therefore the benefits that are forgone by not producing other goods and services – in other words, it is the loss of the opportunity to create benefits by using resources in a different way. Because there are many possible goods and services that different combinations of resources could produce, the opportunity cost of using resources in a particular way is defined as the benefits that would have resulted from their best alternative use.
Costs in economics usually means opportunity costs. This concept is quite different to the more familiar idea of financial costs, which is the cost of goods, services and scarce resources in terms of the money that must be paid to obtain them. In practice, financial costs are very often used to measure opportunity costs, but this is not always the case. It is important to note that opportunity cost and financial costs are different ways of thinking about costs, not different elements of overall costs. They cannot be calculated separately and added together, for example.
1.2 Markets, Demand and Supply
1.2.1 Markets
Economics is a social science, as is emphasised in the definition of economics that refers to how society decides. Although society does make collective decisions about what, how and for whom to produce, in most modern economies this is largely done through markets, by the interaction of those who wish to buy (buyers, or consumers) and those who wish to sell (sellers, or suppliers).
Economics analyses markets mainly through what is called price theory. A market brings together the demand for goods from consumers and the supply of those goods from suppliers. Consumers and suppliers base their buying and selling on the price that they must pay or will receive. Price therefore acts as a signal to both groups as to what they should do in the market. Consumers will want to buy more if the price is lower, but suppliers will want to sell more if the price is higher. If prices are too high, then suppliers will not be able to sell all that they want to and may lower the price. If prices are too low, there will be consumers who cannot buy all that they want. As a result, consumers may bid more, or suppliers may see the possibility that they can raise their price but still be able to sell all that they want. Simple observable indicators like these, the presence of excess demand or supply, determine how much of a good or service is sold and the price that it is sold for.
This simple model of a market for a single good shows one way in which society decides for whom to produce. Consumers can obtain goods if they are both willing and able to pay for them; the more willing and the more able that they are, the more that they can potentially consume. Also, a strong willingness and ability to pay is reflected in high demand even at high prices, which signals to suppliers that they should supply more. So, scarce resources are allocated to producing goods for which demand is high rather than other goods for which the willingness and ability of consumers to pay is less. The demand for such goods is lower and their prices are lower. This, therefore, also shows how markets decide what to produce as well as for whom.
If we also assume that suppliers aim to make as much income as possible from what they sell, then they will wish to keep down the costs of production by choosing the most efficient production methods. So, markets also help to determine how goods are produced as well as what and for whom.
Of course, the real economy is far more complex than this and no economist would pretend that this simple model is a precise description of reality. But the point is that markets do not result in a random allocation of scarce resources, but one that is the result of the incentives provided to economic actors, both consumers and producers, by prices.
1.2.2 Demand for health care, demand for health and need
If we are considering the market for health care, we will be interested in the demand for health care. However, in considering this demand, it is important to recognise that health care has special characteristics that may make it different from other goods. One factor is that health care is not usually demanded because it is in itself pleasurable; in fact, it may be unpleasant. Instead, it is demanded mainly to improve health. So, even if health care is in itself unpleasant, it leads to more pleasure than would otherwise have been the case.
If health care is only demanded in order to improve health, is there then a demand for health improvements? Health can indeed be regarded as a good, in fact a fundamental commodity that is essential to people’s well-being, leading to a demand for improvements in it. Health does have characteristics that more conventional goods have; it can be manufactured; it is wanted and people are willing to pay for improvements in it; and it is scarce relative to people’s wants for it. However, its relationship with the demand for health care is not one-to-one, because although health is affected by health care, it is also affected by many other things and it also affects other aspects of welfare, not just health care. As a good, health is even more peculiar than health care, because of its characteristics. It is less tangible than most other goods, cannot be traded and cannot be passed from one person to another, although obviously some diseases can.
In the context of ordinary goods and services, economics distinguishes between a want, which is the desire to consume something, and effective demand, which is a want backed up by the willingness and ability to pay for it. It is effective demand that is the determinant of resource allocation in a market, rather than wants. But in the context of health care, the issue is more complicated than this, because many people believe that what matters in health care is neither wants nor demands, but needs. Health economists generally interpret a health care need as the capacity to benefit from it, thereby relating needs for health care to a need for health improvements. Not all wants are needs and vice versa. For example, a person may want nutrition supplements, even though these will not produce any health improvements for them; or they may not want a visit to the dentist even if it would improve their oral health.
The conclusion from this is that the demand for health care can be analysed as if it were any good or service, but it has peculiarities that may mean that the usual assumptions about the resource allocation effects of markets do not hold. Moreover, it may well be that people wish resource allocation to be based on the demand for health or the need for health care, neither of which can be provided in a conventional market.
1.2.3 Supply
The supply side of the market is analysed in economics in two separate but related ways. One is related to the resource input and goods output model outlined above, looking at how resource use, costs and outputs are related to each other within a firm. Some of the issues that this illuminates concern efficiency in production, which will be discussed below. Others include issues such as economies of scale - for example, are there any cost savings through having larger general practices?; productivity - for example, how many more surgical operations can a hospital provide if it hires an extra nurse?; and factor substitution - for example, does allowing dental hygienists to replace dentists in undertaking certain tasks lower the costs of producing dental care?
The other way in which supply is analysed is so called market structure - how many firms are there supplying to a market and how do they behave with respect to setting prices and output and making profits? There are two well-known theoretical extremes of market structure. Perfect competition has very many firms in the market so that none has any real economic power, none makes any profits, prices are as low as they can be and output is as high as can be. A monopoly has only one firm, which has great market power, makes as large profits as can be had and has higher prices and lower output. Other models are somewhere in between. The behaviour of some health care organisations, such as pharmaceutical companies, providers of services like dentistry, ophthalmic services and pharmaceutical dispensing and for-profit insurance companies can relatively easily be analysed using these models. It may be more difficult for other organisations. However, they may provide relevant insights, for example regulation of the UK provider sector is increasingly guided by the use of market forces involving contestability to provide some competitive pressures for efficiency.
1.3 Incremental analysis and the margin
Economics analyses many economic activities by according to marginal principles, which is a special case of what is called incremental analysis. Incremental analysis means that the effects of changes in the use of resources are examined according to how they differ from current use. Analysis is focussed on, for example, how much costs and benefits are increased or decreased due to a change in resource use, rather than the absolute levels of costs and benefits that exist after the change. The term ‘marginal’ means at the margin of an existing set of circumstances, for example the costs and benefits that will result from changing the allocation of resources to the smallest extent possible. It does not mean an unimportant change – the costs and benefits involved even in a small change in resource use could be very large. There are two reasons for analysing incremental and marginal changes. First, looking at incremental values of economic variables often gives a better view of the issues faced in decision making. Secondly, an influential economic theory suggests that people do, at least implicitly, make decisions using marginal principles.
A marginal change is defined as a change in an economic variable that is caused by the smallest possible change in another variable, often expressed as ‘one unit’ of that variable. For example, the marginal cost of a good or service is defined as the extra cost that is incurred by producing one more unit of it. That cost could be large, even though the change in the amount of the good or service is small. As an extreme example, suppose that the service is a particular surgical operation and the surgical unit performing it has reached full capacity for its operating theatre. Performing one extra operation would require a new theatre to be built, so its marginal cost would be very high.
However, the marginal cost of the last operation performed within the existing capacity may have been quite small, simply the cost of theatre staff, disposables and subsequent care. As this demonstrates, marginal cost may vary considerably with respect to the same size of change in the other variable, in this case one operation, depending on the absolute level of that other variable, in this case the number of operations already being performed.
A well-known example of the importance of looking at incremental costs is in assessing the impact of early discharge schemes that aim to lower hospital inpatient surgical costs by reducing length of stay. Hospitals may be able to calculate an average cost per day based on information on the average cost of an inpatient stay and length of stay. However, the costs of each inpatient day in practice differ over the time spent in hospital. At the beginning of an inpatient stay there are high costs of surgery and perhaps of high dependency care. At the end of the stay there may simply be basic nursing care and ‘hotel’ costs, which will be much smaller than the costs averaged over the whole length of stay. Reducing the number of low dependency days at the end of the stay will therefore save far fewer costs than might be expected by looking at the average. Incremental costs calculated with respect to an increase or decrease in the number of days would give a correct estimate of the likely savings.
Similarly, a marginal benefit is the extra benefit gained by the consumption of one more unit of a good – again, it is not a small or unimportant benefit. Consider a screening programme which can be carried out with different numbers of sequential tests. The more tests that are carried out, the more cases are detected. A programme that uses one test might yield 10 cases per 1,000 people tested, while a two-test programme might yield 11 cases. Looking at these in terms of their total yield, the two-test programme looks better than the one-test programme. But incremental principles focus on the marginal benefit, which in this case is 10 cases for the one-test programme and only 1 case for the two-test programme, which does not look so good.
Further use of the concept of the margin is discussed in section 6, and a specific application of this in health care is discussed in section 8.
1.4 Efficiency and equity
Economic analysis usually judges the way in which resources are used according to two main criteria: efficiency and equity. Efficiency refers to obtaining the greatest output for a given set of resources. Equity refers to a fair distribution of that output amongst the population. These two concepts have technical definitions, which are described below.
1.4.1 Efficiency
The technical definitions of efficiency described here use the labels given by Morris, Devlin, Parkin and Spencer (2012). Economists are specialists in the analysis of efficiency and largely agree about what it means, and about definitions of different types of efficiency. Unfortunately, however, the labels that they give to those types vary. The same concept may be given different names and the same name may be given to different concepts. So, if other texts are consulted, it may be wise to check what is meant if efficiency is referred to, especially if the terms technical or allocative efficiency are used.
A very broad definition of efficiency has been given by Knapp (1984): the allocation of scarce resources that maximises the achievement of aims. This is useful, because it suggests that the desire to achieve efficiency arises from the desire to improve the world. Given that resources are scarce and there are competing uses for them, we should aim to obtain the best set of uses, according to our definition of what ‘best’ means. If a country decides that the aim of its health system is to improve its population’s health and allocates a fixed budget to health care, it will obtain the biggest health gain if scarce health care resources within its health system are used efficiently.
Before examining more precise and technical definitions of efficiency, it is useful to understand an abstract economics idea called Pareto efficiency, which is sometimes also called allocative efficiency, though not consistently. This tries to define a criterion for judging different allocations of resources to different uses which might be widely acceptable. (Whether it is widely acceptable or not is debated, but that debate is beyond our aims here.) It asserts that we would be able to say that one state of the world is better than another if at least one person is better off under the first state compared with the alternative and no-one is worse off. This is called the Pareto criterion. If we change from one allocation of resources to another, for example changing the health care system in terms of the kind of care that is made available, and as a result some people get better care and no-one gets worse care, this is described as a Pareto improvement. If it is not possible to make any Pareto improvements, then we have achieved a Pareto optimum. A Pareto optimum is therefore a position where it is not possible to make anyone better off without making someone else worse off.
If the aim is to make people in general as well off as possible and there is no concern about whether some people are better off than others, then a Pareto optimum is efficient. Given a Pareto optimal allocation of resources, that aim cannot be achieved to a greater extent because even if one person, or even many people, could be made better off, we do not know if this is outweighed by the fact that some people, even if it is only one person, are made worse off. However, there is not one unique Pareto optimum; the existence of a Pareto optimum does not mean that this is the only efficient way in which resources could be allocated. There are many allocations of resources that would be Pareto optimal, some of which would imply great inequalities between different people. If our aims also took account of this, then we might not view all Pareto optimums as efficient.
Pareto efficiency is therefore a contentious idea as a way of thinking about how resources should be allocated at a societal level, but does form the basis of definitions of efficiency in economics more narrowly. We will examine three types:
Technical efficiency
Economic efficiency
Social efficiency
The concept of technical efficiency is used in analysing the production of health and health care. Recall from section 1.1 that this is a relationship between resource inputs and outputs. Production is technically efficient if the most output possible is produced from a given set of inputs, or the fewest inputs possible are used to produce a given amount of output. For example, the number of patients that can be treated in an out-patient clinic depends on the number of medical and nursing staff that are available and other inputs. If the most that can be provided by one doctor and two nurses is 20 treatments each day, then it is technically inefficient to provide 19 treatments using that number of staff or to provide 20 treatments using more staff.
Another way to view this is that an efficient clinic cannot undertake more treatments without employing at least one more member of staff. It is therefore Pareto efficient: production is technically efficient for a given set of inputs if it is only possible to produce more by using more of at least one input.
The concept of economic efficiency has several alternative labels. One of these is cost-effectiveness, but that term should be used carefully, as will be explained in the section on economic evaluation. Technical efficiency is only concerned with how many inputs are used in production, while economic efficiency is related to the cost of those inputs. Economic efficiency is achieved if the most output possible is produced for a given cost, or a given amount of output is produced at the lowest possible cost. Using the example above, some aspects of the treatment provided in a clinic could be undertaken either by doctors or nurses. It might be equally technically efficient for 20 treatments to be provided each day by using one doctor and two nurses or two doctors and one nurse. But if we assume that doctors are more expensive to employ than nurses, then it will be economically efficient to use the extra nurse rather than the extra doctor. So, although it is necessary to have technical efficiency to be able to achieve economic efficiency, not all technically efficient ways of producing are economically efficient.
Another way to view this is that, given the costs of employing staff, an efficient clinic cannot undertake more treatments without them costing more to provide. As before, it is Pareto efficient: production is economically efficient for a given set of input prices if it is only possible to produce more by incurring greater costs.
Social efficiency is a much broader concept. Both technical efficiency and economic efficiency concern production, and if the supply side of the market achieves economic efficiency in every market, there is allocative efficiency in production for the economy as a whole. An equivalent concept for the demand side of the market is allocative efficiency in consumption where, given prices of goods, consumers maximise their utility. Social efficiency is where both of these are achieved. It means allocative efficiency in the economy as a whole, which is the same as the overall Pareto efficiency described earlier.
Social efficiency is not a concept that has practical use in health economics, but it is an important idea for debates about whether markets should be used in health care. It can be shown that if markets work perfectly, then they will produce a socially efficient economy. To some, this gives a presumption in favour of market provision. However, if markets do not work perfectly they will not produce a socially efficient economy. The questions are then how imperfect markets are and whether there are alternatives, such as government provision, that are better. It is also important as a basis for a form of economic appraisal called cost-benefit analysis, which is discussed in section 5.
1.4.2 Equity
Equity is always an important criterion for allocation of resources. However, it is observable that people attach more importance to equity in health and health care than they do to many other goods and services. Equity is an important policy objective in almost every health care system in the world. Economists have created some very useful ways of measuring equity, but apart from that economic analysis of equity is less clear than the analysis of efficiency and there is lower consensus amongst economists about it.
It is important to distinguish equity from equality. Equity means fairness; in the health care context this means a fair distribution of health and health care between people and fairness in the burden of financing health care. Equality means an equal distribution, but it may not always be fair to be equal. For example, it might be thought to be unfair both healthy and sick people are given equal amounts of health care. However, equity is often defined with respect to equality and inequality. For example, it may be considered equitable that people who have an equal need for health care should have equal access to it. This is a very common definition of equity. However, there could be others, for example:
equal use of health services for equal needs for health care
of health services for equal for health care equal use of health services for equal willingness to pay for that use
of health services for equal for that use equal health outcomes for equal merit
for equal equal health care payments by people for equal ability to pay for that health care
by people for equal for that health care equal expenditure on people for equal health deficit
There is a useful distinction when using equity definitions like this, which also has roots in philosophy, between horizontal and vertical equity. Horizontal equity means the equal treatment of equals; for example, do people who have the same health needs have equal access to health care? Vertical equity means the unequal treatment of unequals; for example, do people who have worse levels of health have greater access to health care?
There are some equity principles that do not take this form. For example, the utilitarian principle is that the most desirable states of the world are those that maximise society’s welfare, even if that involves inequalities. The maximin principle is if there are inequalities in the distribution of resources, these must benefit the least well off. The free market principle is that any distribution of resources, even if it produces very large inequalities, is fair if it results from fair trading, with a fair starting point for trade. The principle of procedural justice might mean that the process used to decide on the allocation of health care resources between people should be fair.
It is likely that these equity principles will conflict with each other. But economics does not really have anything to say about which of these, or others, is the fairest. That is a normative question, based on individual or collective value judgements and may be best analysed using philosophical, legal and political analysis. Economics may be able to describe inequalities, but normative analyses is needed to make judgements of these are inequitable; for example, whether inequalities in health care use across income groups are inequitable.
A key element of defining equity is specifying what it is that is to be fairly distributed between people, sometimes called the ‘distribuendum’. In the examples above, possible candidates were given as ‘use of health services’, ‘health outcomes’, ‘health care payments’ and ‘expenditure’. More generally, three areas are commonly considered as the possible objects of equitable distribution: health; health care; and the finance of health care.
Equity in the distribution of health is almost always expressed in terms of inequalities in health between different socioeconomic and demographic groups within populations. Such health inequalities, particularly those that demonstrate that health status levels vary systematically and inversely with socioeconomic status, are always important in health policy debates within most countries and are a major concern of governments, depending on their political preferences. Many countries include reduction of inequalities in health as a key aim of their health policy. It may be argued that reduction in health inequalities is in fact the only real equity issue for public policy, because a concern for a fair distribution of health care derives solely from a concern about fairness in the levels of health that different members of society have.
Although inequalities in health are important to health economists, and derive to some extent from economic factors, the specifically economic contribution to the analysis of health inequalities is relatively small compared with that from many other disciplines (McIntyre and Mooney, 2007). The main contribution of economics is to analyse inequalities in health with respect to individual people rather than social groupings of various kinds, which has led to valuable contributions in the measurement of health inequalities (O'Donnell et al, 2007).
Horizontal equity in the distribution of health care mainly examines the extent to which people with the same need for health care make the same use of health care services. One problem with this is that it is difficult to assess in practice what equal need means and how it might be measured. For example, different socioeconomic and ethnic groups might have different use of health services because they have different levels of ill-health. Ill-health should affect such use and is a need factor. But socioeconomic status and ethnicity are not in themselves need factors and should not directly affect the use of health services. If we control for need factors and find that the use of health care services is affected by non-need factors, there is evidence of horizontal inequity, because people with the same need consume different amounts of care.
Vertical equity in the distribution of health care is usually interpreted to mean the extent to which people who have different levels of ill-health have different levels of use that are appropriate to that difference. This is even more difficult to measure and even to offer a precise definition of what it should be in practice
Vertical equity is the main focus in considering the finance of health care, in particular whether or not health care is financed according to people’s ability to pay. Essentially, this means the extent to which people who have different incomes make appropriately different payments for their health care. This is encapsulated in the progressivity of the health care financing system. It is to be expected that rich people will pay more for health care than poor people; this does not mean that the finance system has any bias towards rich or poor. However, in a progressive financing system, the proportion of a person’s income that is used to pay for health care rises as income rises. Regressive systems can and do exist, where even though rich people spend more money on health care than poor people, the proportion of their income that the rich spend is lower.
Horizontal equity in financing considers the extent to which people who have the same income, and therefore the same ability to pay for health care, make the same payments. Inequities could arise because of the financing system itself. For example health care that is financed by local taxation may vary across regions; or payments may be related to use of services but the incidence of ill health – and therefore use of services – varies across people who have the same income.
1.5 Discounting
See Section 5.
1.6 Time horizons
See Section 5.
© David Parkin 2017
Department of Economics
Course Descriptions
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Undergraduate Courses
EC 3 Financial Accounting. Theory of accounts, analysis, and recording of transactions; classifications of accounts; determination of revenue; interpretation and preparation of income statements and balance sheets. Cannot be counted toward an Economics major.
EC 5 Principles of Economics. (Formerly Economics 1 and 2.) An introduction to the fundamentals of microeconomic and macroeconomic analysis. Topics covered in microeconomics include 1) how markets determine composition and pricing of outputs and inputs, and 2) the behavior of individual consumers and businesses in response to market forces. Topics covered in macroeconomics include 1) the determinants of economic growth, and 2) the effects of fiscal and monetary policy on unemployment, inflation, and capacity utilization. Economics 5 and 8 may not both be taken for credit.
EC 6 Business Law. Legal issues pertaining to business associations and operations. Topics may include business organizations, the law of contracts and agency, the Uniform Commercial Code, antitrust laws, and direct government regulation. Cannot be counted toward any Economics major.
EC 7 Principles of Financial Accounting. Principles of finance from the perspective of the corporation. Topics include an overview of capital and money markets, short- and long-term sources of finance, issues in selecting equity vs. debt, capital budgeting, costs vs. risks of various instruments, and appropriate uses of particular types of finance. Prerequisites: Economics 5, or Economics 3, or consent. (This course is only offered during Summer Session).
EC 8 Principles of Economics with Environmental Applications. An introduction to the fundamentals of microeconomic and macroeconomic analysis. Covers the same concepts and tools as Economics 5 with a focus on environmental issues, examples, and applications. Satisfies all major or minor requirements satisfied by Economics 5. Economics 5 and 8 may not both be taken for credit.
EC 9 Review of Principles of Economics with Environmental Applications. Introduction to the fundamentals of microeconomic and macroeconomic analysis. Covers the same concepts and tools as Economics 5 with a focus on environmental issues, examples, and application. Students who have taken Economics 5 and want to take Economics 8, must enroll in Economics 9 for credit. Economics 8 and Economics 9 may not both be taken for credit.
EC 11 Intermediate Microeconomic Theory. The theory of price determination and resource allocation in a private enterprise economy, analysis of consumer and producer choices, influences of market structure, and the interrelationship of product prices and factor incomes. Required of all economics majors who have not completed Economics 17 or 203. Prerequisites: Economics 5 or Economics 8; and Mathematics 32 or above.
EC 12 Intermediate Macroeconomic Theory. Analysis of the determinants of national income, basic concepts and accounting, aggregate consumption and investment behavior, and implications for public policy. Required of all economics majors who have not completed Economics 18 or 205. In no case may a student receive credit for both Economics 18 and 12. Prerequisites: Economics 5 or Economics 8; and Mathematics 32 or above.
EC 13 Statistics. An introduction to some basic statistical techniques that are used in economic analysis. Major topics include probability, discrete random variables, continuous random variables, sampling distributions, estimation, and hypothesis testing. The course will conclude with some theory and applications of the linear regression model. Required of all economics majors. Prerequisites: Economics 5 or Economics 8; and Mathematics 32 or above.
EC 15 Basic Econometrics. Introduction to common techniques and applications of econometrics. Students will gain an intuitive understanding of basic econometric techniques and will learn to apply those techniques to new problems. Data analysis with an econometrics software package and an empirical project using econometric methods. Economics 15 and 107 may not both be taken for credit. Prerequisite: Economics 13, or Economics 201, or Mathematics 166, or ES 56, or EE 24, or EE 104.
EC 16 Foundations of Quantitative Economics. Application of mathematical methods common to both micro- and macroeconomics. Applications include: systems of equations and comparative statics, e.g., supply and demand equations and models of strategic interaction; consumer constrained utility maximization; firm profit maximization and cost minimization; dynamic equilibria (difference and differential equations) and dynamic optimization techniques. Prerequisites: Economics 11; and Mathematics 34 or above.
EC 18 Quantitative Intermediate Macroeconomic Theory. Analysis of the determinants of national income, basic concepts and accounting, aggregate consumption and investment behavior, and implications for public policy, with mathematical illustrations. Required for all quantitative economics majors who have not completed Economics 205. In no case may a student receive credit for both Economics 18 and 12. Prerequisites: Economics 16.
EC 19 Review of Quantitative Macroeconomic Theory. Review of Economics 18 for Quantitative Economics majors who have taken Economics 12. Two units. Prerequisites: Economics 16.
EC 24 Game Theory. Introduction to game theory and how it is used to understand strategic interactions among individuals, firms, governments, and countries. Topics include credible threats, signaling, principle-agent problems, auctions, arbitration, voting, implications of asymmetric and incomplete information and collusion. Not open to students who have taken or are currently taking Economics 119 or its equivalent. Prerequisites: Economics 5 or Economics 8.
EC 30 Environmental Economics. An examination of the uses and limitations of economic analysis in dealing with many of the environmental concerns of our society. Public policies concerning the environment will be evaluated as to their ability to meet certain economic criteria. Prerequisite: Economics 5 or Economics 8.
EC 35 Economic Development. Problems in the growth of underdeveloped economies. Emphasis on quantitative models of economic growth at low levels of income and on the testing of various hypotheses proposed to explain underdevelopment. Consequences of market structures, population growth, externalities, institutions, and political factors for economic development. Prerequisites: Economics 5 or Economics 8.
EC 36 Macroeconomic Analysis for Development. Macroeconomic policies for developing countries and implications for growth and development. Orthodoxy, heterodoxy, shock therapy, and gradualism. Seignorage, fiscal policy, and debt sustainability. Exchange rate management and capital flows. Political economy and political reform strategies. Country studies and cross-national statistical studies from developing and transitional economies. Prerequisites: Economics 5 or Economics 8.
EC 43 Women in the Labor Market. Application of the tools of microeconomics to examine the status of women in the labor market. Will include analyses of earnings, poverty, labor force participation, hours of work, and unemployment. While most of the course will focus on the recent past and the present, part of the course will be devoted to how gender differences have changed historically. Prerequisites: Economics 5 or Economics 8.
EC 48 Health Economics. An examination of major topics in the economics of health and health care, both in the United States and abroad, using the basic theoretical and empirical tools of economics. Covers the medical and nonmedical determinants of health, markets for medical care services and health insurance, and proposed ideas for health care reform. Special topics include AIDS, aging, and obesity. Prerequisites Economics 5 or Economics 8. This course meets the following distribution requirements: Social Sciences.
EC 50 Introduction to Finance. An introduction to fundamental ideas of corporate finance and their connection to economic principles through basic theory, cases and applications. Not open to students who have taken or are currently taking Economics 150 or its equivalent. Prerequisite: Economics 5 or Economics 8.
EC 60 International Economics. Analysis of the economic effects of trade among nations. Determination and stabilization of exchange rates; regulation of commerce through various commercial policies; the United States balance of payments; the impact of international trade on price, incomes, and employment in the participating nations; international agencies and agreements affecting world trade. Custom unions and common markets, world liquidity problems. Not open to students who have taken or are currently taking Economics 161 or its equivalent. Prerequisites: Economics 5 or Economics 8.
EC 62 Economics of International Migration. Exploration how economists tackle the questions: Who migrates? Who stays and who returns? Why? Which migrants send money home? What impact do those remittances have on economic development? How can economics help us understand refugee flows and illegal migration? Why do immigrants cluster in neighborhoods like Chinatown or the North End of Boston? Is migration a substitute for or a complement to international trade? The course first develops economic tools for understanding both individuals' decision to migrate across international borders and the resulting migrant flows. It then explores the economic impact and policy implications of migration for home (migrant sending) and host (migrant receiving) countries' economies. Prerequisite: Economics 5 or Economics 8, or consent.
EC 63 Economics of the European Union. Introductory examination of the development and functioning of the European Union through economic models. Discussed are European economic integration, customs union, and the single market; free movement of labor and capital; monetary unification; the European Central Bank versus the US Federal Reserve System; monetary versus fiscal policy; regional policy; and social policy. Also examined are external trade policies and economic benefits and costs of joining the union for small versus large countries, the euro as an international currency, the impact of the EU on the developing world and on international income disparities, and the EU's role relative to other regional trading blocks in the world economy. Prerequisites: Economics 5 or Economics 8.
EC 74 Entrepreneurship. Analysis of the economic role and importance of the entrepreneur. The entrepreneur as market-maker and leader. The entrepreneurial role in strategic decision making, organizational design, and management development. Financial planning and venture capital. Prerequisite: Economics 5 or Economics 8.
EC 77 Economics Organization. This course considers how economic principles can help us answer these questions. We look at how the organizational architecture of firms affects corporate strategy. We investigate how organizational structure determines corporate performance. We analyze how the balance between the delegation of decision rights, the design of incentive systems and the monitoring and evaluation of individual and divisional performance, when correct lead to success and when wrong can lead to failure. Throughout the course we draw heavily on case studies and real-world examples of business organizations. Prerequisites: Economics 5 or Economics 8. (This course is only offered during Summer Session).
EC 83 Economies of the Middle East. Introductory survey of Middle Eastern economies. The geographic focus will be on the Eastern Arab world - Egypt, the Fertile Crescent, and the Arabian Peninsula - plus Israel and Iran. Because of their historical and cultural ties with the region, Turkey and the countries of North Africa are also considered. Various aspects of the economic realities of the region, such as economic growth and development, the economics of oil, water and food security, population growth and labor mobility, health, education, the role of the state, economic policy reform, and the prospects for global and regional integration. Course is designed to provide both a grasp of the economic development of the Middle East in modern times and a familiarity with present-day economic conditions. Prerequisites: Economics 5 or Economics 8.
EC 86 American Economic Development in Historical Perspectives, 1630-1930. (Cross-listed as History 179.) History of the American economy as a consequence of three regional development strategies: plantation production of staple exports (South); import-substitution-industrialization (North); small-scale commercial agriculture (West.) Topics include interregional trade, the retardation of the postbellum South, transformation of northern manufacturing, and the new macroeconomics of the Great Depression. Prerequisites: Economics 5 or Economics 8.
EC 87 Economics of the British Industrial Revolution, 1750-1850. (Cross-listed as History 162.) English property rights, the demographic revolution, the agricultural revolution, the Poor Law, labor market integration, standard of living, domestic and international capital flows, foreign trade, Empire trade (India, Ireland, West Indies), and the relative retardation of France and Holland. Prerequisites: Economics 5 or Economics 8.
EC 90 Independent Study. Independent reading or research on special topics in economics for one unit. Approval and supervision of a faculty member is required. Work in an approved internship is permissible as part of the curriculum. Grading is typically pass/fail. Prerequisites: Economics 11, 12, or 13.
EC 91 Introductory Selected Topics. Lectures on introductory topics in economics. Topics to be announced. Credit as arranged. Prerequisites: Economics 5 or Economics 8, or consent.
EC 92 Seminar. Designed to enable students with an Economics 5 level of preparation to explore and to do research on a major topic. Topics vary from year to year. Prerequisites Economics 5 or Economics 8, or permission of instructor.
Undergraduate & Graduate Courses
EC 100 Foundational Ideas in Economic Theory. An examination of some ideas foundational to the nature of economic science and of how they are used within the positivist methodology of economic theory. These ideas include causality, equilibrium, rationality, utility maximization, the market, competition, contract, property, money, economic growth, risk and uncertainty, and path dependence. Prerequisites: Economics 11 and either Economics 12 or Economics 18.
EC 105 Mathematics for Economists. Introduction to mathematical economics. Core topics: calculus, linear algebra, unconstrained and constrained optimization, difference and/or differential equations, and dynamic optimization with emphasis on the use of these techniques in economics. Fall term only. Prerequisites: Economics 11 and Mathematics 32 and 34 (formerly Mathematics 11 and 12), or consent.
EC 107 Econometric Analysis. The study of multiple regression and its applications in economics. The course will focus on the appropriateness of the techniques when the independent variables are measured with error, the disturbance terms exhibit autocorrelation, or the independent variables are correlated with the disturbances. The course will be concluded by an introduction to simultaneous equation techniques. Economics 15 and 107 may not both be taken for credit. Prerequisite: Either Mathematics 70 or 72; plus one of the following: Economics 13, Mathematics 166, or ES 56.
EC 108 Applications of Econometrics. Synthesis of economic and econometric theory and the application of appropriate econometric methods to real-world problems. Data gathering, model building, estimation, and presentation of results. Topics include wage determination, input demand, investment behavior, advertising, and macroeconomic forecasting. Seminar format. Prerequisites: Economics 11, 12, and 15, or 107, or consent.
EC 109 Review of Econometric Analysis. Review of Economics 107 for Quantitative Economics majors who have taken Economics 15. Two units. Prerequisites: Economics 15, Mathematics 34 (formerly Mathematics 12) and consent. Mathematics 70 or 72 (formerly Mathematics 46 or 54) recommended a prerequisites or corequisites.
EC 114 Behavioral Economics. Analysis of economic decision making which incorporates the effects of social, emotional, and cognitive issues. Topics considered include heuristics and biases, risks, time preferences, social preferences, matching markets and social networks. A familiarity with taking derivatives and using calculus is also expected. Prerequisites: Economics 11; and one of the following is recommended: Economics 24, Economics 119, Economics 170, or Philosophy 38.
EC 116 Economic Growth: Theory and Applications. Theory and experience of economic growth in developed and underdeveloped economies. Models of exogenous growth; recent studies employing techniques of dynamic analysis that emphasize the endogenous nature of growth and the role of factors such as innovation and learning by doing. Applications to the areas of macroeconomics, dynamic trade theory, and economic development. Not open to students who have taken or are currently taking Economics 118 or its equivalent. Prerequisite: Economics 11. In no case may a student receive credit for both Economics 116 and Economics 118.
EC 117 Economics of Social Interactions and Social Networks. Course employs quantitative economics tools to study social networks and the identification of social interactions effects that pervade social networks and economic life. This course provides an overview and synthesis social networks effects, which are important for many economic phenomena, and draws from studies by sociologists, economists, computer scientists, physicists, and mathematicians. Prerequisites: Economics 15 or Economics 107, or consent.
EC 118 Quantitative Economic Growth. A rigorous treatment of various theoretical models of economic growth while emphasizing the link between theory and empirics. Are poor countries catching up with rich countries in terms of per capita income? Which policies promote economic development and which do not? Topics include capital accumulation models of growth, the role of technology in sustaining long-run growth, linear regression approaches to uncovering important growth determinants, issues in robustness and specification uncertainty, and the influence of "fundamentals" like institutions, geography, population diversity, and culture on development. Prerequisites: Economics 13 and 18.
In no case may a student receive credit for both Economics 116 and Economics 118.
EC 119 Quantitative Games & Information. The strategic role of information, or “who knows what and when they know it”, underlies many observed economic phenomena. This course applies game theory to understanding how revealing and concealing information can be the basis of strategic behavior in economics. It will cover games of perfect information, imperfect information, and incomplete information, and develop the corresponding solution for each type of game. Examples will include games of asymmetric information that have been applied in economics to a wide range of fields including industrial organization, finance, labor, and development economics. No previous course in game theory is required. Prerequisites: Economics 13 (or ES 56) and Economics 16; or Economics 201 and 203.
EC 120 Public Finance. Study of the economics of the public sector. An examination of the role government plays in market economics, and the ways public spending decisions are made. An evaluation of the size of government and the effectiveness of specific programs. Detailed analysis of the methods used to finance governments and of the role various taxes play in influencing the allocation and distribution of resources within an economy. Prerequisites: Economics 5 and 11.
EC 122 Topics in Public Finance. Analysis of a current issue regarding government tax or expenditure programs using tools developed in public finance. Topics vary from year to year. Possible areas of study include reforming the federal tax system, designing new tax systems in developing countries, and improving the provision of public education. Prerequisite: Economics 120; Economics 13 recommended.
EC 124 State and Local Public Finance. Issues in the provision and financing of public services by state and local governments. Provision of local public services, their adequacy, alternative models of local government decision making, optimal size of local governments, merits of the property tax, who really pays the property tax, alternative revenue sources, suburbs vs. central cities, metropolitan governance, the fiscal crisis of large cities, fiscal federalism, school finance reform, and the impact of tax and expenditure limitation. Prerequisite: Economics 11 and Economics 13, or equivalent.
EC 127 Urban Economics. Development of modern urban areas and the application of economic analysis to the problems of location, transportation, housing, racial discrimination, public services, and finances. Prerequisites: Economics 11 and either Economics 13 or ES 56.
EC 130 Topics in Environmental Economics. Research seminar for students who wish to pursue environmental economics beyond the level of Economics 30. Topics may include the design and administration of environmental excise taxes, the theory and practice of benefit-cost analysis, the economics of renewable and exhaustible resources, and the sustainability of economic growth. Prerequisites: Economics 11 and 30, or consent.
EC 132 Economics of Energy Markets. Analysis of energy markets and policy issues arising from our production and consumption of energy. Topics considered include the theory of depletable resources, measurement of energy externalities, market power in energy production, climate change and energy security. Prerequisites Economics 11; Economics 13 suggested.
EC 134 Resource and Environmental Economics and Policy. Research seminar for students interested in current research and thinking in the area of resource and environmental economics. Topics include: the future of fossil fuels, the potential for renewables such as solar and wind power, resource abundance and violent conflict, resource use and population dynamics, environmental regulation, pollution and water markets, and energy access and poverty. Discussion will be based on simple economic models as well as current empirical research. Tests, homework and term paper required. Prerequisites Economics 11.
EC 136 Topics in Economic Development. Selected major current problems in various less-developed countries. Students will be asked to utilize and extend the theoretical insights from Economics 35 by applying them in specific cases. Topics will include problems in energy, agriculture, balance of payments, and industrialization. Elements of benefit-cost analysis will also be covered. Prerequisites: Economics 11 and 35; Economics 13 suggested.
EC 139 Transition Economies. Analysis of the economics of transition from central planning to a market-based economy. Topics may include characteristics of socialist economies, theories of transition, transformational recession, stabilization, privatization, labor markets, financial development, trade, social safety nets, and institutional reform. Prerequisite: Economics 11.
EC 140 Labor Economics. Analysis of competitive labor markets. Examination of firm's choice of workers and workers' choice of amount and quality of labor to provide. Implications for policy areas such as social security and retirement, welfare reform, labor supply and taxes, job training and wage subsidies, labor force participation rates, unemployment, and investment in schooling. Prerequisite: Economics 11, or consent.
EC 142 Topics in Noncompetitive Labor Markets. Analysis of wage and employment decisions in labor markets that deviate from the standard competitive model. Effects of imperfect information, labor unions, and discrimination. How implications for policy differ from the usual competitive model predictions. Prerequisites: Economics 140 or 11, and consent.
EC 144 Income Inequality, Poverty, and Economic Justice. Summary measures of income distribution and their implicit value judgments. The link between trends in relative inequality in incomes and differences in wages, earnings, and labor supply. The impact of personal characteristics, institutions, and macroeconomic trends on earnings. Discussion of the pervasiveness of poverty, its causes and public policy measures for its alleviation. Economic and philosophical aspects of an equitable and just distribution of income. Prerequisite: Economics 11 and Economics 13.
EC 145 Economics of Higher Education. Advanced seminar exploring economic research on some provocative current policy questions in U.S. higher education. Topics may include the function of colleges, public subsidies, fairness of college admissions, financial aid as a benefit of the college or the student, whether it is worth paying more to attend a selective college, the influence of competition for prestige on university behavior, and whether college sports teams are consistent with educational values. Most class meetings involve student-led discussion of articles from books, journals, and the popular press. Class attendance and active participation required. Required research paper on a topic related to the class readings. Paper will be integrated into the course, with periodic deadlines for portions of the paper and class discussion of the ongoing research. Prerequisites: Economics 11; or Economics 16 and Economics 13.
EC 148 Topics in Health Economics. Research seminar for students who wish to pursue health economics beyond the level of Economics 0048. Emphasis on how economists use causal inference methods to answer health economics questions. Topics may include the effect of health insurance on outcomes such as health care utilization, preventive health behaviors, financial well-being, and the effect of pollution on health. Prerequisites: EC 11 and either EC 15 or EC 107. Recommendations: EC 48.
EC 149 Economics of Sports. The world of sports is used to illustrate the application of core concepts from microeconomics and econometrics. The main topics covered are the industrial organization of sports, the public finance of sports, the labor economics of sports, and college sports. Each section will begin with an overview of contextual information and will then show how the appropriate tools for economics can be applied. Each section closes with discussion of recent research on the topic of the section. Prerequisites: Economics 11 and Economics 15 or Economics 107.
EC 150 Financial Economics. Application of economic theory and statistics to the analyses of corporate investment and financing decisions and the equilibrium prices of financial instruments. Topics include the time value of money, structure of interest rates, evaluation of investment projects, the advantage of portfolio diversification, asset pricing models, corporate capital structure, dividend policy and the valuation of options and futures. Prerequisites: Economics 11 and either Economics 12 or Economics 18. In no case may a student receive credit for both Economics 150 and Economics 159.
EC 151 Monetary Economics. Overview of the U.S. financial system with an emphasis on basic monetary theory, the structure and regulatory environment of financial institutions, the conduct of monetary policy, and international linkages. Prerequisites: Economics 11 and either Economics 12 or Economics 18.
EC 152 Topics in Money and Finance. Research seminar for students who wish to pursue monetary and financial issues beyond the levels of Economics 150. A lengthy research paper is required, and active participation in class is expected. Topics covered include the level and structure of interest rates, structure of financial flows in the U.S., portfolio theory and decision making under uncertainty, and public policy issues insecurity markets. Prerequisites: Economics 11, 12, 13, and 150 or 151.
EC 154 Uncertainty Methods in Economics and Finance. New and recent developments in uncertainty methods applied to economic theory and financial decision-making under symmetric and asymmetric information. Topics include the structure of financial markets, insurance, risk-sharing, and asset pricing in static and dynamic economic contexts. Prerequisites: Economics 11 and Economics 13.
EC 157 Topics in Finance and Entrepreneurship. Topics covered include: the financial life-cycle; corporate liquidity; small-firm financing options; organizational constituencies—founders, shareholders, employees—and their goals; conflict and cooperation in constituent goals; and strategic modeling. Individual and/or team projects. Capstone course for the Finance Minor. Prerequisites: Economics 50 or Economics 150 or permission of instructor.
EC 159 Quantitative Financial Economics. This course will explore quantitative analysis of theoretical and empirical models of finance; including, but not limited to, the economic foundations of financial assets and prices; financial decisions of households; and the role of financial markets and institutions in an economy. Recent theories in behavioral finance, and how these theories explain financial market anomalies (e.g., asset price bubbles and financial crises), as well as their policy implications, will also be examined. A short paper is required at the end of the course. Prerequisites: Economics 13 (or ES 56), Economics 16 and Economics 18.
In no case may a student receive credit for both Economics 150 and Economics 159.
EC 161 International Trade. Historical development of the theory of international specialization and exchange. Subsequent topics include trade and imperfect competition, trade policy, and economic warfare. International factor movements, international trading system, and policy tools of trade intervention and their welfare implications. Prerequisite: Economics 11.
EC 162 International Finance. Macroeconomic and monetary aspects of international economics. Topics include foreign exchange markets, income and price determination under flexible and fixed exchange rates, theories of the exchange rate and of the balance of payments, stabilization policy in the international economy, international capital movements, and the institutional arrangements of the international monetary system. Not open to students who have taken or are currently taking Economics 169 or its equivalent. Prerequisite: Economics 12 or Economics 18.
In no case may a student receive credit for both Economics 162 and Economics 169.
EC 164 Topics in International Finance. Research seminar for students who wish to pursue international finance beyond the level of Economics 162. Topics include basics of multinational corporate finance, exchange rate hedging using options and forwards, monetary and fiscal policies in open economies, global capital markets, international business cycles, emerging market financial crisis, and regional economic issues. Prerequisite: Economics 162.
EC 165 Labor and Global Supply Chains. At the turn of the 21st century the growth of international trade has raised concerns about working conditions in factories and plantations producing for consumers in North America and Europe. Consumers have become increasingly aware of the sometimes demanding and dangerous working conditions and the plight of child workers. Workers' organizations complain of their goods competing against those of workers denied the rights of free association and collective bargaining. This course examines the realities of work in global supply chains and the role that markets and market failure play in determining working conditions. Consumer, policymaker, and labor concerns including the establishment and coordination of international labor standards, corporate codes of conduct, enforcement in the World Trade Organization and International Labor Organization, monitoring of working conditions, and other remedies are analyzed. Intended as intermediate level course. Prerequisites: Economics 13 and 16.
EC 166 Topics in the Macroeconomics of Regions and Nations. Economic geography and its interaction with international trade; economic integration; spatial distribution of economic activity with particular reference to urban/regional structure. Macroeconomic performance and the spatial structure of the economy. Income distribution and macroeconomics. Strategic aspects of economic interdependence. Economic geography and self-organization. Prerequisites: Economics 11, Economics 12 or Economics 18, and one course in international economics; or consent.
EC 169 Quantitative International Finance. (Formerly Economics 185.) Quantitative analysis of theoretical and empirical models of international finance. Topics include balance of payments and exchange rate determination models, foreign exchange market efficiency, exchange rate regimes, international capital flows, and emerging market financial crisis. Prerequisite: Economics 18 or 205; Economics 105 recommended.
In no case may a student receive credit for both Economics 162 and Economics 169.
EC 170 Industrial Organization. Examination of the strategic interaction of firms in the marketplace and how this affects the way markets are organized. Different models of oligopoly are studied in order to understand how firms strategically set price, choose output, choose product quality, invest in capacity, and engage in R&D. Use of government policy and antitrust laws to influence the ways in which firms compete with each other. Prerequisite: Economics 11.
EC 171 Topics in Industrial Organization. New and recent developments in industrial organization. The theory of the firm and its organization in the context of transaction costs, agency costs, and property rights. Vertical integration, vertical restrictions, tie-in sales, and informational topics such as advertising and disclosure. Prerequisites: Economics 11 and 170.
EC 174 Advertising and Imperfect Competition. (Effective Spring 2020 and beyond: Fulfills Quantitative Elective Requirement.) An analytical course that focuses on how advertising affects consumer demand, firm rivalry, two-sided platforms and market efficiency. The formal objective of the course is to give students an exposure to how economists view the role of advertising in a market economy by presenting key economic models of advertising, empirical research on advertising and when relevant case studies. Prerequisites: Economics 11 and either Economics 13 or ES 56. This can count as an elective with Ec 16 or Ec 18 or Ec 107 as a prerequisite.
EC 175 Economics of Management and Strategy. Application of economic reasoning to strategic aspects of management decision-making. The centrality of game theory in a firm's strategic choices; bargaining and negotiation; the determination of the vertical and horizontal boundaries of the firm; strategic commitment; dynamic pricing rivalry; entry and exit; the origins, creation, and maintenance of competitive advantage. Prerequisite: Economics 11, or consent.
EC 176 Multinational Enterprises. The turn of the 21st century has seen a dramatic increase in foreign direct investment, with investment flows substantially outstripping export and import flows in most years for most developed countries. This has had an equally dramatic impact on the means by which companies conduct their international business. This advanced seminar course develops a systematic analysis of the motives for foreign direct investment, which creates multinational enterprises. The theoretical part of the course builds a series of models that shed light on the primary forces that motivate firms to switch from exporting to multinational production. Also investigated are some of the potential welfare impacts of the decision to become a multinational enterprise, on both host and home countries, and some of the empirical issues that arise when we try to explain patterns of international production and attempt to quantify the effects of multinationals on home and host nations. Prerequisites: Economics 11 and 13. A previous game theory and/or international economics course would also be useful.
EC 177 Economics Organization. This course considers how economic principles can help us answer these questions. We look at how the organizational architecture of firms affects corporate strategy. We investigate how organizational structure determines corporate performance. We analyze how the balance between the delegation of decision rights, the design of incentive systems and the monitoring and evaluation of individual and divisional performance, when correct lead to success and when wrong can lead to failure. Throughout the course we draw heavily on case studies and real-world examples of business organizations. Prerequisites: Economics 11.
EC 179 Law and Economics. An economic analysis of the common, legislated, and constitutional law and the process of each with primary emphasis on the impact of legal rights and duties. Topics chosen from products liability, malpractice, tort, contracts, property, financial, family, discrimination, environment, corporate, antitrust, employment, and regulatory vs. common law remedies for the abuse of market power. Prerequisites: Economics 11 and 13, or consent.
EC 183 Topics in International Political Economy. Advanced seminar on current economic and political developments in the global arena. Topics may include the political underpinnings of the globalization of international financial markets, factors underpinning the political backlash against globalization, the relevance of international organizations such as the UN and the WTO, the role of the military in international economic and political affairs, and the relationship between globalization and development. Prerequisites: Economics 11 and Economics 12 or Economics 18.
EC 184 The Number and Size of Nations. The number of sovereign states has increased dramatically from 74 in 1945 to almost 200. They come in all sizes with China at 1.2 billion people and Tuvalu, the smallest country with a seat at the United Nations, at less than 11,000. This advanced seminar examines what determines the number and size of nations and how borders change over time, how a country's size matters for economic prosperity, and how the formation and breakup of nations depend on democratization, economic integration, international conflicts and wars. These questions are addressed using the tools of economic analysis, while also taking into account insights from other disciplines, such as history and political science. Prerequisites: Economics 11 or 16 and Economics 12 or 18.
EC 190 Independent Study. Independent reading or research on special topics in economics. Approval and supervision of a faculty member is required. Units as arranged. Prerequisite: Economics 11, Economics 12 or Economics 18, or Economics 13.
EC 191 Intermediate Selected Topics. Lectures on intermediate topics in economics. Topics to be announced. Credit as arranged. Prerequisite: Economics 11, Economics 12 or Economics 18, or Economics 13.
EC 192 Advanced Seminar. Designed to enable advanced students with significant training in economics to explore and do research on a major topic. Topic varies from year to year. Prerequisite: Economics 11, Economics 12 or Economics 18, or Economics 13.
EC 193 Special Topics.
EC 193 The Mathematics of Poverty and Inequality. (Cross-listed as Math 150-01) This course explores the extent to which mathematics can help shed light on the evolution of the distributions of wealth and income as reflected in histograms and continuous measures such as the Lorenz curve. Dynamic processes such as that postulated by Gibrat, Markov, and Wiender will be considered as underlying mechanisms driving wealth and income distributions over time. We will also consider empirical data to examine which models and processes are most consistent with the real world evidence. The course may be used to satisfy the upper level quantitative elective requirement for Quantitative Economics majors. Prerequisites: Math 42 or Math 44 Required; Math 21 or Math 61 Recommended.
EC 195, 196 Senior Honors. Thesis course for thesis honors candidates; see Thesis Honors Program for details. Open to seniors. Normally two courses. Prerequisite: consent.
EC 197 Senior Thesis Research Seminar. A year-long, one-credit, pass-fail course designed to help seniors writing senior theses or honors theses plan and execute their research and write their thesis. Faculty members and past thesis writers will meet with the seminar and discuss various aspects of the research process. Students in the seminar are also expected to present their work and provide feedback to their fellow seminar participants. Two course units, per semester.
EC 198 Senior Thesis. (Formerly Economics 194.) Designed for students who want to write a senior thesis, but do not want to be a part of the Thesis Honors Program. Approval of a faculty member is required. Variable units.
Graduate Courses
EC 201 Advanced Statistics. Statistical inference including elements of probability theory, hypothesis testing, and multivariate analysis. Offered only in the Fall.
EC 202 Econometrics. Parameter estimation techniques for linear single equation and simultaneous equations and their application to the study of economic behavior. Offered only in the Spring.
EC 203 Microeconomic Theory I. Analysis of consumer behavior, the theory of production, equilibrium of the firm and the industry, market structure, and the pricing of the factors of production. Offered only in the Fall.
EC 204 Microeconomic Theory II. Advanced topics in microeconomic theory, such as equilibrium analysis and introduction to welfare economics. Offered only in the Spring.
EC 205 Macroeconomic Theory I. Analysis of income and unemployment theory; comparison of classical, Keynesian, and post-Keynesian systems; and theories of inflation. Offered only in the Fall.
EC 206 Macroeconomic Theory II. Advanced topics in macroeconomic theory, such as business cycles, growth models, and conditions for stability. Offered only in the Spring.
EC 207 Graduate Applied Econometrics. Advanced topics in micro- and/or macro-econometrics. Offered only in the Fall. Prerequisite: Economics 202 or permission of instructor.
EC 211 Research Methods Seminar I. This course is designed to help research-based MS students write their thesis. The seminar is an opportunity for students to share their experience with other thesis writers, learn advanced research techniques, and obtain feedback. The class complements and does not substitute ongoing meetings with thesis advisor(s). (Only open to second-year research-based MS students and not appropriate as a general graduate elective). Offered in the Fall.
EC 212 Research Methods Seminar II. This course is the continuation of EC 211. Likewise, it is designed to help research-based MS students write their thesis. The seminar is an opportunity for students to share their experience with other thesis writers, learn advanced research techniques, and obtain feedback. The class complements and does not substitute ongoing meetings with thesis advisor(s). (Only open to second-year research-based MS students and not appropriate as a general graduate elective). Offered in the Spring.
EC 215 Research Seminar I. This course is a required course for all first year candidates in the Economics and Public Policy Ph.D. program. The course is taken for three units in the Fall semester.
EC 217 Research Seminar II. This course is a required course for all first year candidates in the Economics and Public Policy Ph.D. program. The course is taken for three units in the Spring semester.
EC 232 The Economics of Climate Change. This course provides an economic overview and analysis of climate change. We will also use the DICE model, a well-known integrated assessment model (IAM) to illustrate and explore key issues in modeling climate change and policy responses. Prerequisites: Ec 202 and Ec 204 or permission of instructor. The course is taken for three units in the Spring semester.
EC 233 Advanced Energy Economics. This course provides an in-depth overview of topics in energy economics, with the goal of preparing students to embark on original research at the frontier of the field. Topics include fossil fuel extraction, electricity market design, utility regulation, renewable power investment, environmental externalities, and distributional concerns. The course is taken for three units. Priority is given for Economics and Public Policy PhD students. May be taken concurrently with Ec 207. Prerequisites: Ec 201, Ec 202, Ec 203, Ec 204. Permission of instructor.
EC 234 Advanced Seminar in Resource and Environmental Economics. This course will cover current topics in resource and environmental economics, including pollution regulation, water scarcity and deforestation, conflict over resources and climate change. Each topic will combine reading at least one paper in depth and other selected papers for wider exposure to the subject. For some topics the course will provide an overview of the literature and introduce the basic economic modeling framework. Students will read both theoretical and empirical papers in the field. The topics covered are intended to provide an overview of current scholarly work in energy and environmental economics, as well as make students familiar with the methodology used. The main goal of the course is to introduce students to a range of issues and help identify problems for further study or research. Prerequisites: Ec 201 or permission of instructor. The course is taken for three units in the Spring semester.
EC 237 Doctoral Seminar in Research Approaches and Methods. The objectives of this course are to provide PhD students with tools to rigorously analyze data and to craft research output (papers and presentations) from the resulting estimates; and to provide constructive feedback on others' work. The course covers current topics in modern applied econometrics such as difference in difference, regression discontinuity, randomized controlled trials, shift-share designs, inference, missing data, and others. This course is the second part of a two-course sequence in the joint Fletcher-Econ PhD program.
EC 290 Independent Study. Independent reading or research on special topics in economics for one unit. Approval and supervision of a faculty member is required. Work in an approved internship is permissible as part of the curriculum. Grading is typically pass/fail.
EC 293, EC 294 Special Topics. Guided individual study of an approved topic. Variable units.
EC 295, EC 296 Thesis. Guided research on a topic that has been approved as a suitable subject for a master's thesis. Two courses.
EC 297 Doctoral Dissertation. Supervised research on a topic approved for the doctoral dissertation. When undertaking doctoral dissertation work students must register once for Economics 297 (Fall) and Economics 298 (Spring.) Typically, a "Y" grade will be assigned until the doctoral dissertation is successfully completed. Credits: 3 Units. Department consent.
EC 298 Doctoral Dissertation. Supervised research on a topic approved for the doctoral dissertation. When undertaking doctoral dissertation work students must register once for Economics 297 (Fall) and Economics 298 (Spring.) Typically, a "Y" grade will be assigned until the doctoral dissertation is successfully completed. Credits: 3 Units. Department consent.
EC 299 Workshop in Empirical Economics. This course gives doctoral students hands-on experience with presenting research in Economics and Public Policy. Presenting regularly during the doctoral research years provides students with feedback about their research ideas, empirical strategies, and presentation skills. Students present their ongoing research and receive feedback from their peers, the instructor, and other faculty. Students will also meet with the instructor individually to hone their research and presentation skills. The class is open to all students in the Economics and Public Policy PhD program and enrollment is required for students in their 3rd year and beyond. The course is taken for 1 unit in Fall and Spring semesters. Credits for this course cannot substitute for doctoral required coursework and other requirements. Prerequisites: First- and second-Year PhD coursework. By permission.
EC 401 PT Master's Continuation, Part-time.
EC 402 FT Master's Continuation, Full-time.
EC 502 PT Doctoral Continuation Course. Continuation of supervised research on a topic approved for the doctoral dissertation. Doctoral students continuing research towards their dissertation must complete a petition to enroll in Economics 502 FT or PT Doctoral Continuation. No credit.
EC 502 FT Doctoral Continuation Course. Continuation of supervised research on a topic approved for the doctoral dissertation. Doctoral students continuing research towards their dissertation must complete a petition to enroll in Economics 502 FT or PT Doctoral Continuation. No credit.