Problem set 1

EC155d – Spring 2015  Problem set 1

Due on Friday, February 20th at 5:00 PM (a printed copy in my office at the Center for Social Entrepreneurship).

As the first two chapters in the Mankiw test illustrate, economics is an indispensable tool for analyzing our most stubborn 21st-century challenges: poverty alleviation, stabilizing the environment, and even promoting more human rights. Markets and public policies, when designed correctly, can provide incentives that dramatically improve well-being. Conversely, when power is misallocated such that the rules of the game are tilted, markets and policies can stifle progress and impede the lives of too many. Getting all of this right is a moral imperative.

For this first problem set, I invite you to use your brand new economic perspective to find an example of how the tools of economics can improve peoples lives. Here’s what I propose:

  • Identify first a social challenge that you really care about: for example, underemployed youth in American cities; destruction of local ecosystems; women who encounter systematic discrimination in a workplace. Find something that you care about and/or you want to learn more about.
  • Next, go online and learn. What can you find about this challenge? What is the heart of the problem? What incentives do people face? If the incentives are misaligned (from the perspective of public welfare), why?
  • Then go out and find one illustrative example of how this challenge has been overcome somewhere. Using the three cases above, for example: a city that has found ways to bring young men into the workforce; a state that has used economic incentives to protect natural resources; a firm that has appropriately and fairly promoted women.
  • Now share a two-page (double-spaced) summary of the case. What is behind the success in this case? How did incentives change? Who changed them and why? Is the success likely to be sustainable? Why or why not? Your job here is to show how change can happen for the better and how the tools of economics can effect that change. Hint: use some of Mankiw’s principles (the eight of the ten that matter for microeconomics) to guide your thinking and the crafting of your essay.
  • We’ll discuss this problem set in class, to address any questions you may have.

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