Learning objectives
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The aim of the course is to put the students in a condition to be able to understand the essential operating mechanisms of a modern market economy; to discuss the merits of the market economies but also to identify its possible weaknesses, the so called market failures; to understand what is the role of the State in the market economies and how fiscal and monetary authorites through fiscal and monetary policies are able to face crises and difficult situations.
Prerequisites
<p>No previous requirements are necessary</p>
Course unit content
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THIS COURSE COMPRISES TWO PARTS. THE FIRST COVERS MICROECONOMICS, STUDYING THE FUNCTIONING OF MARKET ECONOMIES STARTING FROM THE ANALYSIS OF THE BEHAVIOUR OF THE SINGLE UNITS THAT OPERATE WITHIN THEM. THE SECOND MACROECONOMIC PART LOOKS INSTEAD AT THE WAY MARKET ECONOMIES OPERATE STARTING DIRECTLY FROM THE ANALYSIS OF THE LARGE AGGREGATES IN WHICH ECONOMIC ACTIVITIES ARE USUALLY CLASSIFIED. <br />
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THE FIRST PART OF THE COURSE AIMS PRINCIPALLY TO EXPLAIN HOW THE ALLOCATION OF RESOURCES WORKS IN A MARKET ECONOMY. STUDYING A RESOURCE ALLOCATION SYSTEM MEANS STUDYING THE MECHANISMS THROUGH WHICH DIFFERENT ECONOMIC OPERATORS – CONSUMERS AND BUSINESSES – DETERMINE “WHAT IS PRODUCED”, “HOW MUCH OF EACH THING IS PRODUCED” AND “HOW (USING WHICH TECHNOLOGIES) EACH THING IS PRODUCED”, AND “HOW WORK AND CAPITAL ARE DISTRIBUTED AMONG THE VARIOUS COMPARTMENTS OF AN ECONOMY”. DIFFERENT ECONOMIC SYSTEMS ARE BASED ON DIFFERENT RESOURCE ALLOCATION SYSTEMS. IN MARKET ECONOMIES, THE MAIN MECHANISM GOVERNING RESOURCE ALLOCATION IS THE PRICE SYSTEM. THROUGH THE PRICE SYSTEM, THE COMPOSITION OF PRODUCTION IS DETERMINED TOGETHER WITH THE ALLOCATION OF WORK AND CAPITAL. THE COURSE WILL THEREFORE EXAMINE THE MECHANISMS THROUGH WHCIH PRICES ARE FORMULATED AND WILL ILLUSTRATE THE DIFFERENT FUNCTIONS CARRIED OUT BY THE PRICE SYSTEM. TO EXPLAIN HOW PRICES ARE FORMULATED, THE COURSE WILL EXAMINE THE FUNCTIONS OF CONSUMER DEMAND AND PRODUCER SUPPLY FUNCTIONS. THE INTERACTION BETWEEN SUPPLY AND DEMAND LIES AT THE ROOT OF PRICE FORMATION. THE COURSE WILL PROVIDE AMPLE COVERAGE OF HOW SUPPLY AND DEMAND IS FORMED, WHICH FATTORS MAY CHANGE IT, WHAT ARE THE EFFECTS OF SUCH CHANGES ON THE PRICE AND QUANTITY PRODUCED OF EACH GOOD. AS FAR AS PRODUCER SUPPLY, IT WILL BE DEMONSTRATED HOW THESE CHARACTERISTICS DEPEND ON THE TYPE OF MARKET THE BUSINESSES OPERATE IN. IT WILL BE SHOWN HOW COMPETITITVE MARKETS EXIST IN WHICH THE SAME GOOD IS PRODUCED BY MANY COMPANIES COMPETING WITH EACH OTHER, OLIGOPOLISTIC MARKETS WHERE THE SAME GOOD IS PRODUCED BY A FEW LARGE COMPANIES AND MONOPOLISTIC MARKETS, WHERE THERE IS NO COMPETITION AS ONLY ONE COMPANY PRODUCES A GIVEN GOOD. IT WILL BE SHOWN THAT THE RULES OF BEHAVIOUR BUSINESSES BENEFIT FROM FOLLOWING ARE DIFFERENT IN EACH OF THESE MARKETS. THE COURSE WILL BE COMPOSED OF BOTH A POSITIVE ANALYSIS COMPONENT AND NORMATIVE ANALYSIS. THIS MEANS THAT IT WILL NOT BE LIMITED TO DESCRIBING THE OPERATIONS OF A MARKET ECONOMY (POSITIVE ANALYSIS) BUT WILL TRY TO OFFER AN OPINION ON ITS DESIDERABILITY (NORMATIVE ANALYSIS). IT WILL ALSO SHOW HOW MARKET ECONOMIES GENERALLY POSSESS SOME QUALITIES THAT MAKE A SYSTEM DESIRABLE, BUT IT WILL ALSO BE SHOWN HOW THERE ARE OTHER SITUATIONS IN A MARKET ECONOMY THAT DO NOT PRODUCE POSITIVE SOCIAL RESULTS. IN THESE CASES REFERENCE WILL BE MADE TO MARKET FAILURE, ASSESSING THE OPPORUNITY FOR STATE INTERVENTION TO CORRECT OR REPLACE A MARKET IN ITS RESOURCE ALLOCATION FUNCTION. <br />
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THE SECOND PART OF THE COURSE AIMS TO EXPLAIN HOW VALUES OF THE MAIN MACROECONOMIC QUANTITIES ARE DETERMINED IN A MARKET ECONOMY: EMPLOYMENT, CONSUMPTION, INVESTIMENTS, PRICE LEVELS, UNEMPLOYMENT, MONEY SUPPLY. THE COURSE BEGINS BY EXAMINING WHAT DETERMINES THE EQUILIBRIUM IN THE GOODS AND CURRENCY MARKETS IN THE SHORT TERM AND IN A CLOSED ECONOMY UNDER THE ASSUMPTION OF FIXED PRICES AND GOES ON TO EXAMINE A MARKET MODEL WITH FLEXIBLE PRICES VALID FOR A MEDIUM-TERM ANALYSIS. THIS ANALYSIS WILL MAKE POSSIBLE TO DETERMINE THE EQUILIBRIUM VALUES OF INCOME, EMPLOYMENT, RATE OF INTEREST AND LEVEL OF PRICES. SPECIFIC ANALYSIS WILL BE DEDICATED TO FISCAL AND MONETARY POLICIES THAT MAY CHANGE THE LEVEL OF INCOME AND EMPLOYMENT. FINALLY, THE CAUSES AND REMEDIES FOR INFLATION WILL BE EXAMINED.</p>
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Bibliography
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For the microeconomic part, refer to the text by Katz and Rosen edited by Mc Graw Hill "Microeconomia". For the macroeconomic part, to the text by Blanchard, edited by Mulino, “Scoprire la macroeconomia”, first volume
Teaching methods
Teaching is classroom based. Assessment is through written exam based on four questions covering general topics discussed in class. An optional intermediate exam is available for those wishing to divide the exam into two parts.
