HE5092 Economic Theory

The aim of this course is to provide a basic understanding of the theoretical foundations of microeconomics and macroeconomics at an intermediate level. The microeconomics component of the course is organized around (a) the theory of households making consumption, saving, and labor-supply decisions, (b) the theory of firms making output-supply as well as input-demand decisions, and (c) the theory of public goods and externality. Based on the microeconomic foundation developed in the first part of the course, the macroeconomics component develops the relevant functions for the three major macroeconomic markets: goods, money, and labor markets. The functions include the consumption function, saving function, investment function, money-demand function, etc. Using these functions, macroeconomic models are formulated to study the effects of various shocks and policy actions on the macro economy. A consistent approach based on the rationality of economic agents is used throughout both the microeconomics and macroeconomics components of the course.