Bachelor
2024/2025





Economic Theory
Type:
Compulsory course (International Program 'International Relations and Global Studies')
Area of studies:
International Relations
Delivered by:
Faculty of World Economy and International Affairs
When:
1 year, 3, 4 module
Mode of studies:
distance learning
Online hours:
30
Open to:
students of one campus
Language:
English
ECTS credits:
3
Course Syllabus
Abstract
Economic theory is a one-module undergraduate course, which combines a brief introduction to the standard methodology of economics with an overview of the essential models of mainstream micro- and macroeconomics. It’s intended to give students an overview of the economic models that describe the behavior and interaction of individual consumers and firms, formation of prices in various market structures, and the real-life problems of economic inefficiency caused by market failures as well as macroeconomic issues of aggregate product and national income determination, unemployment, inflation and the main instruments and consequences of fiscal and monetary policy.
Learning Objectives
- define the main concepts and describe the models used in economic analysis
- formulate real world issues in the language of economic modelling
- apply and use economic models to give answers to specific questions motivated by real world issues
Expected Learning Outcomes
- analyse inflation expectations
- define aggregate demand and graph the AD schedule
- define aggregate supply in the classical model
- derive the IS curve and the LM curve
- describe and illustrate the free rider problem
- discuss the effects of short-run and permanent demand and supply shocks
- distinguish between economic and accounting definitions of cost
- Explain how wages and unemployment are determined in the aggregate labor market
- explain the Philips curve
- identify the impact of fiscal and monetary policy on equilibrium output and interest rate
- identify the problem of externalities and possible solutions
- List the types and causes of unemployment.
- discuss internally consistent national accounts: why measuring GDP by output, expenditure or by incomes produces the same result
- identify nominal versus real measures of economic output; interpret changes in nominal/real GDP
- recognize and understand the identity Y = C + I + G + NX
- contrast actual and potential output
- show how aggregate demand determines short-run equilibrium output
- define the marginal propensity to consume, the marginal propensity to invest and the marginal propensity to import
- explain the multiplier effect and calculate the autonomous spending multiplier
- analyze how changes in parameters of consumption/investment/fiscal policy/net exports affect aggregate demand and equilibrium output
- discuss how demand for money depends on output, prices and interest rates
- explain and compute the deposit multiplier, loan multiplier and money multiplier
- identify the benefit, cost and economic surplus of an action/decision
- identify the opportunity cost of an action/decision
- define the concept of a Pareto-efficient allocation/outcome; determine whether a specific allocation is Pareto-efficient
- define individual/market demand and its determinants
- define individual/market supply and its determinants
- derive market demand function from individual demand functions, derive direct demand function from inverse demand function and vice versa, illustrate the demand curve from the form of demand function
- derive market supply function from individual supply functions, derive direct supply function from inverse supply function and vice versa, illustrate the supply curve from the form of supply function
- use demand/supply functions to compute and illustrate equilibrium price, quantity, consumers' and producers' surplus
- define, compute and interpret the values of: own-price and cross-price elasticity of demand, income elasticity of demand
- describe and illustrate the consequences of changes in prices of inputs/prices of substitutes and complements/consumer incomes for market demand, market supply, equilibrium price and quantity
- compute, illustrate and discuss the consequences of price controls, quotas, price supports, taxes and subsidies for market equilibrium quantity, buyers' and sellers' prices, consumers' and producers' surplus, social welfare
- derive algebraic expressions for marginal product of an input from a production function, determine, whether diminishing marginal returns to this input are present
- define increasing/decreasing/constant returns to scale and determine the type of returns to scale for a given production function
- define the Law of Diminishing marginal returns to an input and explain, why it is supposed to hold in real life
- explain the reasons for which we may observe increasing/decreasing returns to scale in real life
- derive the expressions for FC/VC/AVC/AC/MC from a specific cost function and illustrate the AVC/AC/MC curves
- explain, what properties of production technology are responsible for a certain shape of short-run MC/AVC curves, LAC curves
- use the relationships between TC/VC/FC/AVC/AC/MC to reconstruct any of the listed components of cost from others
- compute and illustrate the price-taking firm's profit-maximizing output level, producer surplus and profit from information about price and cost
- derive and illustrate the price-taking firm's individual supply function from information about its cost
- set up the profit maximization problem of a price setting firm (monopoly), derive and illustrate its profit-maximizing output, price, profit, producer and consumer surplus from information about market demand and the firm's cost
- explain the reason for, illustrate and compute the social losses from market power
- relate the price elasticity of demand (PED) to market power, use information about PED to compute the markup a price-setting firm charges over its marginal cost
- compute and illustrate the impact of government regulation (price controls, taxes, subsidies) for a firm's profit-maximizing output, price, producer's surplus and profit
- identify players, actions, payoffs, dominant/dominated strategies and Nash equilibria of a game using its payoff matrix
- define dominant/dominated strategies/Nash equilibrium/credible threat/non-credible threat
- construct a payoff matrix from a verbal description of a game
- construct a game tree from a verbal description of a game
- identify players, actions, payoffs, dominant/dominated strategies, credible/non-credible threats and subgame perfect Nash equilibria of a sequential game using its payoff matrix
- identify players, actions, payoffs, dominant/dominated strategies, credible/non-credible threats and subgame perfect Nash equilibria of a sequential game using its game tree
- identify Pareto-efficient/Pareto-inefficient outcomes of a game
- define a Prisoners' Dilemma, determine, whether a specific game is a Prisoners' Dilemma type
- define a cartel, describe the purposes of a cartel and its implications for equilibrium output, price, profits and social welfare
Course Contents
- The economic way of thinking. Benefit, cost and economic surplus. Opportunity cost and sunk cost. Rational maximization, equilibrium and Pareto-efficiency.
- Perfect competition
- Firms: production technologies and costs
- Firm behavior: price-takers and price-setters
- Strategic interactions: game theory and oligopoly
- Externalities and public goods.
- The "Keynesian cross": a macroeconomic model of goods and services market/demand-determined economy.
- The macroeconomic market for money.
- The IS-LM model.
- The macroeconomic labour market.
- Aggregate demand and aggregate supply.
- Unemployment and inflation: NAIRU and the Phillips curve.
Assessment Elements
- Final examThe exam is a written assignment, consisting of two free response problems (one concerning the microeconomic part of the course and another - the macroeconomic part). Upon completing the assignment, the student must discuss the written assignment and his answers to it with the examiners, answering any questions they might have.
- Home assignmentThe home assignment consists of two short questions and two longer questions; half of the questions concerning the microeconomic part of the course and another - the macroeconomic part. The home assignment is typically issued two or three weeks before the end of the course.
- In-class quizzesThe final grade for this part is the average for all quizzes. There will be no make-ups for missed quizzes - but, if a quiz has been missed for an objective, documentally verified reason registered with the study office, its weight in the final grade will be transferred to other quizzes this student has written.
Interim Assessment
- 2024/2025 4th module0.3 * Final exam + 0.3 * Home assignment + 0.4 * In-class quizzes
Bibliography
Recommended Core Bibliography
- An introduction to game theory, Osborne, M. J., 2009
- Athreya, K. B. (2014). Big Ideas in Macroeconomics : A Nontechnical View. Cambridge, Massachusetts: The MIT Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=683172
- Big ideas in macroeconomics : a nontechnical view, Athreya, K. B., 2013
- Macroeconomics, Blanchard, O., 2017
- Microeconomics, Pindyck, R. S., 2018
- Pindyck, R. S., & Rubinfeld, D. L. (2015). Microeconomics, Global Edition (Vol. Global edition, Eighth edition). Boston: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1419566
- Principles of microeconomics, Frank, R. H., 2009
Recommended Additional Bibliography
- Economics, Lipsey, R., 2015