Economics for Economic Historians

Michaelmas term 2008

Lise Arena, Oriel College and History Faculty

OBJECTIVE
Economics appears, probably more than any other social science, alien to anyone not familiar with its language and method. Still, it remains one of the most dynamic, versatile, and useful approaches to the study of social behaviour. The aim of this course is to introduce researchers to the principles and way of thinking of economics. Over nine sessions, we will explore the various elements in the economist’s basic ‘toolbox’, placing a special emphasis on how these elements are applied to describe and understand the real world. Since it does not assume any prior knowledge in the field, the course is particularly suited for graduate students who have not previously studied economics and need to understand the main concepts and the jargon used in the discipline. Students with some knowledge of economics, however, might also find it useful for reviewing concepts or clarifying ideas.

COURSE ARRANGEMENT AND EVALUATION
The course consists of nine (9) sessions of two hours each (with a ten-minute break), taking place:

• Thursdays, 9.00–11.10 in the Colin Matthews Seminar Room, History Faculty (Old Boys' School) George Street
• Weeks 0 to 8 in Michaelmas term

In every class students will receive a problem set that they have to hand in the day before the following class. Students are required to attempt all the questions in each problem set. Assessment for this course will take the form of a take-away pass–fail test in week 9 of Michaelmas term that will include both analytical and essay questions. The test will be handed out at 9.00 on 8 December and should be submitted by 17.00 on Wednesday 10 December. The purpose of the test is for self-monitoring. It has no effect on degree results.

BIBLIOGRAPHY
There is no single textbook for the course, but a full detailed reading list will be provided at the first class. The topics to be discussed in the sessions are covered by a large number of good textbooks on economics. Probably one of the most accessible and less narrowly theoretical is:

• Parkin, Michael, Melanie Powell, and Kent Matthews [2003];
  Economics –5th Edition- (Addison Wesley)

(NOTE: This textbook, like most of the others mentioned below, has not only many updated editions, but also alternative editions –American, European, International – with various alternative co-authors. This might confuse many of you when searching the library, but do not panic! All of them are generally pretty similar to each other and can be used interchangeably. Just to be consistent with the references, we list the latest edition held in the Bodleian.)

Another nice book is:

• Mankiw, N. Gregory [2003]; Principles of Economics – 3rd Edition – (Thomson/South-Western)

Other standard textbooks like Begg, D., S.Fischer and R. Dornbusch [2002]; Economics -7th Edition- (McGraw-Hill) or Stiglitz, J. and C. Walsh [2002]; Economics –3rd Edition- (Norton) would also work fine.

Both Michael Parkin et al. and Gregory Mankiw have also produced some texts on microeconomics and macroeconomics, and they are very good. Still, any student interested in a deeper knowledge of microeconomics should approach the standard reference at intermediate level:

• Varian, Hal [2003]; Intermediate Microeconomics: A Modern Approach (Norton)

For macroeconomics there is no such a standard reference, but I find the following books particularly useful:

• Blanchard, Olivier [2003]; Macroeconomics –3rd Edition- (Prentice Hall)
• Sachs, Jeffrey and Felipe Larrain [1993]; Macroeconomics in the Global Economy (Prentice Hall)

Other books not mentioned here might also work. Do not hesitate in contacting us if you have any doubt.

Class Schedule
As mentioned above, the course will provide an overview of the basic concepts and ideas in economics. After an introductory class, the first half of the course will deal with microeconomics, whereas the second will cover various topics in macroeconomics. These are some of the topics we will discuss:

Introduction

Week 0 (9 October)
Basic concepts in economics
Scarcity; households, firms and governments; economics approach; microeconomics and macroeconomics.

Quantitative data and graphical analysis
Curves, slopes and elasticities; budget constraint; supply, demand and price mechanism; preferences and utility function.

Microeconomics

Part I: Choice, technology and price mechanism

Week 1 (16 October)

Individual choice and demand
Consumption possibilities; preferences and indifference curves; substitutes and complements; choice and utility maximisation; demand; income, substitution and price effects.

Firm behaviour and supply
Firms and market structure; technology; returns to scale; cost curves; profit maximisation and cost minimisation; supply; firm supply and industry supply; perfect competition.

Week 2 (23 October)

Supply and demand in action
Market mechanism; equilibrium in a market economy; general equilibrium.

Sellers and buyers with market power
Monopoly and profit maximisation; inefficiency of monopoly; deadweight loss; price discrimination; natural monopolies; rent-seeking; price regulation; monopsony.

Part II: Topics in social interaction

Week 3 (30 October)

Issues in non-cooperation
Non-cooperative behaviour; duopoly, oligopoly and monopolistic competition; game theory; Nash equilibrium; repeated and sequential games; games of coordination, competition and commitment.

Issues in exchange
Robinson Crusoe; Friday and the gains from trade; Edgeworth box diagram; Pareto efficiency; economic efficiency and equilibrium; welfare.

Week 4 (6 November)

Issues in market failure
Market failure and inefficiency; positive and negative externalities; correcting externalities; tragedy of the commons; public goods; the role of the State.

Issues in information
Imperfect information; risk and uncertainty; signalling; moral hazard and adverse selection; principal-agent problem.

Macroeconomics

Part I: Basic concepts and ideas

Week 5 (13 November)

The economy as a whole
Microeconomics vs. macroeconomics; GDP, unemployment and inflation; real and nominal variables; business cycles; aggregate supply and demand.

Approaches to macroeconomics
Macro-models; short, medium and long run; Consumption; Savings and Investment.

Part II: Output determination and Public Policy

Week 6 (20 November)

Macroeconomic policy (in the short run)
Aggregate demand and the Keynesian multiplier; IS-LM framework; macroeconomic policy in a closed economy

Macroeconomic policy in an open economy
Mundell-Fleming framework; macroeconomic policy

Part III: Labour Economics and the public sector

Week 7 (27 November)

Labour Market and Unemployment
Debates on unemployment; classical view on labour and unemployment; Keynesian view of full-employment

Current account and the public sector
Saving, investment and current account; fiscal budget; public deficit; public-private sector interaction; Ricardian equivalence; tax smoothing

Part IV: Monetary economics

Week 8 (4 December)

Money demand and supply
What is money?; money supply and demand; banks and financial markets; monetary policy; interest rate determination; expectations.

Exchange rate, prices and inflation
Exchange rate systems;; prices, wages and unemployment; the Phillips curve.