Markets and the Economy

This course focuses on how firms relate to the broader economic environment, and it serves as a bridge in the economics sequence between Managerial Economics and Global Economic Environment. In Managerial Economics, we analyzed decisions based on information specific to the individual firm, such as cost and demand, and the strategic interaction between a small number of firms when those organizations wield market power. In this course, we expand our analysis to the broader economic environment in which multiple firms are operating simultaneously and we focus on how the economic environment affects business decisions. We begin by examining different indicators of economic health and how they relate to the collective behavior of businesses, households, and governments, which together define an aggregate economic system. We then focus on the forces that drive long-term trends in the global economy. Some of the questions we examine include: What is the impact of different macroeconomic forces on the global labor market and income inequality? How can we forecast the growth rate of the global economy? Why do some economies grow much more rapidly than others, and how can we anticipate the next emerging market miracle? How do government policies such as taxes and regulations affect individual firms and the overall economic system? Our discussion builds on the analysis of competitive markets that studies how prices and quantities are determined, how prices evolve, and how these developments are affected by changes in various policies, such as the minimum wage, rent control, immigration, and taxes. This review touches on the different forces that interfere with and complicate the efficient operations of markets, such as externalities, and looks at connections between markets through international trade. Assessing these forces is crucial for both the understanding how markets operate as well as identifying the social responsibilities of business leaders. This course develops a toolkit for analysis and sets the stage for Global Economic Environment, the third course in this sequence, which focuses on the boom-bust cycle, its impact on businesses, and the role that is played by monetary policy, fiscal policy, and financial globalization in determining economic fluctuations.