This is a core course restricted to Ford School students only.
Public policy often begins with a goal like making housing more affordable, reducing carbon emissions, or raising wages. But a goal is not a policy, and a policy is not an outcome. People making choices ultimately determine the outcomes from policies, and thus whether a policy will accomplish its intended goal.
Any new policy changes the choices people face. Some people will respond in a way that matches a policymaker's goals. Others, however, will change their behavior in ways no one intended. They may find a way around the rule, pass its costs on to someone else, or just decide that some other option is now preferable. A housing subsidy may help families pay the rent, but it may also raise rents. Rent control may provide affordable housing at first, but over time, may lead to housing shortages. A tax on carbon may reduce emissions, but it is also a tax that disproportionately falls on lower income households. Who gets hurt by the tax, and how much it actually reduces emissions, depends on what other options households and businesses have. A regulation designed to protect workers may change whom businesses hire or how work is organized, ultimately leaving some workers worse off even if others are made better off.
None of this tells us that the policy is necessarily good or bad. It tells us what we need to understand before deciding. Some people call these unintended consequences, but a good policy maker is able to anticipate these behavioral changes. Only by doing so, are able to truly forecast what their policy will do and thus whether it will accomplish their goals.
This is the work of microeconomics. Economics gives us tools for thinking about choices, constraints, incentives, and interdependence. It asks us to compare a policy not with a perfect world, but with the next best option people face. It pushes us to look beyond the intentions of a law or policy and ask who ultimately benefits, who pays, and what people will do next.
This course is the first in a two-term economics sequence for public policy students. We will start with four big ideas: cost-benefit analysis, opportunity cost, marginal analysis, and interdependence. These ideas will give us a way to think about individual choices. We will then turn to supply and demand to understand what happens when all of those choices come together.
We will examine how firms decide what to produce and what to charge, how workers and employers find one another, and how people make decisions when the best choice depends on what someone else does. Some students come to economics expecting to learn why markets work. Others expect to learn why markets fail. We will do both. We will study why markets sometimes work remarkably well and how important real-world complexities like externalities, private information, market power, and uncertainty mean that government policy can often improve on markets. Throughout, we will ask how economic policies affect inequality and poverty, not simply whether a policy creates gains in the aggregate, but who gets those gains and who bears the costs.
