Economics, 3rd Edition

Course No. 550
Professor Timothy Taylor, M.Econ.
Macalester College
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Course No. 550
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Course Overview

We are all economists—when we work, buy, save, invest, pay taxes, and vote. It repays us many times over to be good economists. Economic issues are active in our lives every day. However, when the subject of economics comes up in conversation or on the news, we can find ourselves longing for a more sophisticated understanding of the fundamentals of economics.

  • How can I get an overview of the entire U.S. economy?
  • Why do budget deficits matter?
  • What exactly does the Federal Reserve do?
  • Why do most economists favor international trade so strongly?

Economics, 3rd Edition, will help you think about and discuss these and other economic issues that affect you and the nation every day—interest rates, unemployment, personal investing, budget deficits, globalization, and many more—with a greater level of knowledge and sophistication.

Designed for those who haven't already purchased our 2nd Edition economics course, this enlarged and reorganized 3rd Edition includes updated statistics and discussions of more recent events. It also features expanded coverage in areas of great public interest, such as anti-trust issues, corporate responsibility, and international financial crashes.

Master the Basics of Economics

These lectures require no special or advanced knowledge of mathematics. Instead, you will learn economics through intuitive explanations and in plain English, from an instructor who has won teaching awards at Stanford and the University of Minnesota.

Professor Timothy Taylor's first 18 lectures focus on "microeconomics," or looking at economics "from the bottom up." You will study the behavior of individuals, households, and firms; and how they interact in markets for goods, labor, and saving and investment. Topics in microeconomics include:

  • How does supply and demand operate in the free market to determine the prices of the goods we buy and the salaries we are paid?
  • How are interest rates determined? And what effects do they have on so many decisions we make—such as what house we will buy?
  • How do businesses compete with one another? What is a natural monopoly? What role does government have to play in encouraging and regulating competition?
  • Defining "public goods"—things like national defense and education—that we all benefit from whether we contribute to them or not. The difficulty of encouraging citizens to support production of public goods can be understood through a game theory problem known as the prisoner's dilemma.

The second half of the course covers "macroeconomics," or studying the economy "from the top down."Here you will examine the factors that help economists evaluate the economy on a national and global scale. Among these macroeconomic issues are:

  • Common ways the government taxes and spends, and how these actions affect the total demand and supply in our economy
  • The relationship between employment and inflation, and the different perspectives on this problem advanced by the two main schools of economic theory—the Keynesians and the neoclassicists
  • International economics: What are the arguments for and against international trade? How are exchange rates determined and what do they really mean to us as individuals and the economy in general? What are the future prospects for the global economy—which nations are likely to do well and which will lag behind?

Throughout this course, Professor Taylor helps you apply what you are learning to many of today's most frequently discussed and misunderstood issues. Has the world economy become truly borderless, and does globalization take jobs away from American workers? Why do markets for car and health insurance often seem so costly and controversial? What are our prospects for heading off the Social Security and healthcare crises that loom in the coming decades?

Learn to Think Like an Economist

One of the 20th century's top economists, John Maynard Keynes, once said, "Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions."

You will learn that economics is essentially a way of thinking about big problems that face our society, and that economists sometimes think very differently about these issues than the rest of us do. You will practice thinking like an economist about a succession of topics that are in the news virtually every day, such as:

  • Is it realistic to view pollution as a moral wrong, as some environmentalists do, and try to eliminate it completely? Or can pollution actually have benefits? What would we have to give up if we tried to totally eradicate pollution?
  • How should the government decide whether or not to block a proposed corporate merger?
  • Should we control rents so that people can afford housing? Or should government subsidize low-income housing, or offer families rent vouchers? Which strategy would an economist favor? Which would a politician most likely choose?

In these lectures, you will appreciate the difficulties involved in formulating economic policies that are both effective and satisfying to everyone—consumers and businesses, Republicans and Democrats, rich and poor.

Economics Everywhere: From Cowrie Shells to Edison, from Mohair to Mickey Mouse

Economics isn't just about numbers: It's about politics, psychology, history, inventions, and countless other aspects of human endeavor. As a result, it never lacks for interesting, surprising, or amusing content. The following are a few of many examples:

  • Thomas Edison's first invention was an automatic vote-counting machine. But he found he couldn't sell it, so he vowed only to make inventions people would buy.
  • The idea of using a "basket of goods" to measure inflation goes back a long time. During the Revolutionary War, Massachusetts paid its soldiers the amount of money that would buy the following basket of goods: 5 bushels of corn, 68 and four-sevenths pounds of beef, 10 pounds of wood, and 16 pounds of leather.
  • The first federal minimum wage law, passed in 1938, was intended to keep jobs in northern United States from flowing to the south, where wages were much lower. It intentionally put millions of low-skilled black workers in the south out of work.
  • The item that served as money over the broadest geographic area and the longest period of time was the cowrie shell. It was in use as early as 700 B.C. in China and was subsequently used in India, Africa, and southern Europe. It was an acceptable way to pay taxes in some African nations well into the 20th century.
  • The argument that a product should be protected against foreign imports because it is vital to national security is often abused. In the 1950s, the American mohair industry successfully argued for protection—which exists to this day—on the basis that military uniforms contained mohair and without support for the industry American soldiers risked going to battle naked.

In other lectures, you will learn how various ways to measure and analyze the economy were first developed—for example, how America's first statistical definition of poverty was formulated by one person, Social Security Administration employee Mollie Orshansky, in the 1960s. Professor Taylor takes you through the intricacies of patents, copyrights, and product advertising, with examples ranging from America's top corporations to Sonny Bono and Mickey Mouse. You will even see that economic analysis can be applied to behavior that doesn't seem related to economics at all, such as why so many Americans don't vote.

Be an Economics Conversation Starter. Or Stopper.

If you complete this course and devote some thought to its subject matter, you'll be able to hold your own any time the discussion turns to economics, whether it's at your office, in the news, or at the dinner table.

If you hear someone say, for example, "A tax on gas could be a good way of encouraging people to drive less," you'll be able to add, knowingly, "Perhaps, but of course, it all depends on the elasticity of demand for gasoline."

"I should warn you though," Professor Taylor says, from personal experience, "that comments like this can either lead to a really much more intelligent and informed conversation, or they can lead the conversation to an abrupt and uncomfortable halt."

Please note:

This course is not intended to provide financial or investment advice. All investments involve risk: Past performance does not guarantee future success. You acknowledge that any reliance on any information from the materials contained in this course shall be at your own risk.

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36 lectures
 |  Average 30 minutes each
  • 1
    How Economists Think
    This lecture identifies ways in which economists think differently about human motivations, tradeoffs, and the workings of markets. It also introduces a number of terms: microeconomics, macroeconomics, opportunity cost, marginal analysis, and more. x
  • 2
    Division of Labor
    The division of labor means that almost no one produces all or most of what they consume. Since Adam Smith over 200 years ago, economists have explained how the combination of a division of labor and exchange of goods and services increases productivity. x
  • 3
    Supply and Demand
    Any market involves both buyers, or "demand;" and sellers, or "supply." The supply and demand framework predicts that markets will tend toward an equilibrium price, where the quantity supplied and the quantity demanded are equal. x
  • 4
    Price Floors and Ceilings
    Price floors, such as government support for farmers, set price minimums, while price ceilings, like rent control, set a maximum price. Both can hold prices away from equilibrium, and make demand unequal to supply. Price regulations impose costs on consumers or producers, and create inefficiency. x
  • 5
    Demand for orange juice is elastic—when its price rises, consumers can switch to other juices. Demand for gasoline is inelastic—when its price rises, drivers can't switch to other fuels. Elasticity is useful in evaluating how public policies will work. x
  • 6
    The Labor Market and Wages
    In the labor market, individuals are the suppliers, businesses are the demanders, and wages are the price. This lecture examines labor markets by discussing some prominent issues, like the minimum wage and how payroll taxes for Social Security affect wages. x
  • 7
    Financial Markets and Rates of Return
    There is a longstanding prejudice against capital markets in western culture—after all, charging interest used to be considered a sin of usury. This lecture focuses on the demand side of the capital markets, or primarily the demand for financial capital from businesses that seek to invest in plants and equipment. x
  • 8
    Personal Investing
    The supply side of the capital market is an ornate name for a more basic question: How can I get rich through financial investments? While this course is not intended to provide financial or investment advice, this lecture looks at the four major investment concerns—return, risk, liquidity, and tax status—and then considers a range of investments, and their tradeoffs. x
  • 9
    From Perfect Competition to Monopoly
    Competition between firms falls into four categories: perfect competition, monopolistic competition, oligopoly, and monopoly. This lecture discusses these paradigms, and describes how prices, output, and profits are likely to differ in each. x
  • 10
    Antitrust and Competition Policy
    Antitrust refers to government policies to prevent monopoly and encourage competition. They include blocking proposed mergers between firms; forcing firms to change unfair practices; and in some cases (like AT&T in 1984) requiring large firms to be split into smaller ones. x
  • 11
    Regulation and Deregulation
    In some industries—like airlines, banking, and electricity—government has sought to regulate prices charged and/or quantities produced. This lecture discusses the situations when government regulation works best, and when it does not. x
  • 12
    Negative Externalities and the Environment
    "Negative externalities" are situations in which the buying and selling of goods creates consequences—like pollution—felt by third parties who are not part of the original transaction. Regulation can be inflexible and costly. Economists have instead proposed market-oriented policies. x
  • 13
    Positive Externalities and Technology
    The market can produce too few "positive externalities": good things like scientific research, innovation, and education. Policy solutions for this situation include patents, copyrights, direct government support, and tax credits to industry. x
  • 14
    Public Goods
    Public goods, like national defense or basic scientific research, are "nonexcludable" and "nondepletable." Potential sellers cannot exclude people from using them, and they are not used up as more people use them. Markets often do a poor job of producing public goods, so there is a case for government action. x
  • 15
    Poverty and Welfare Programs
    Economists have preferred anti-poverty strategies that favor cash and wage subsidies over trying to set prices low or wages high for the poor. However, recent welfare reform emphasizes another feature—that people take jobs as soon as possible. x
  • 16
    Inequality is the gap between those with high incomes and those with low incomes. Since the late 1970s, inequality has increased in the United States. This lecture discusses the possible causes, whether some government response is appropriate and, if so, what kind. x
  • 17
    Imperfect Information and Insurance
    Imperfect information, such as how much to charge for auto insurance when information about the risks of auto accident is imperfect, can raise havoc with markets. It raises two issues—moral hazard and adverse selection—that are fundamental to arguments over health insurance in the United States. x
  • 18
    Corporate and Political Governance
    Shareholders may have trouble constraining the actions of top corporate managers and voters can have difficulty controlling politicians' actions. So skepticism is warranted about whether firms will seek efficient production, or whether politicians will act in society's best interest. x
  • 19
    Macroeconomics and GDP
    Macroeconomics has four policy goals—economic growth, low unemployment, low inflation, and sustainable trade deficits—and two main tools: federal budget policy and monetary policies of the Federal Reserve. Gross domestic product (GDP) is the standard measure of a nation's economy. x
  • 20
    Economic Growth
    In the long run, the rate of economic growth is by far the most important factor in determining the average standard of living. The key factors behind economic growth are increases in physical capital, human capital, and technology, all of which depend upon a supportive market environment. x
  • 21
    The economist's view of unemployment focuses on why supply and demand in the labor market are producing unemployment. The underlying causes of unemployment can be split into two broad categories: cyclical unemployment, and the structural or natural rate of unemployment. x
  • 22
    Inflation is an overall sustained increase in the level of prices. The inflation rate is determined by defining a basket of goods, and then tracking how the cost of that basket changes over time. Mild inflation is not a great policy concern, but higher levels can cause problems. x
  • 23
    The Balance of Trade
    The trade deficit is perhaps the most misunderstood statistic in all of economics. The United States ran extremely large trade deficits in the late 1990s and into the 2000s, turning the United States into the world's largest debtor economy. x
  • 24
    Aggregate Supply and Aggregate Demand
    Economists commonly think about the macroeconomy through the model of aggregate demand and supply. It indicates how growth, inflation, unemployment, and the trade balance are related; why certain goals sometimes involve trade offs; and which macroeconomic policies to use. x
  • 25
    The Unemployment-Inflation Tradeoff
    Some of the biggest controversies in modern macroeconomics revolve around whether an unemployment-inflation tradeoff exists. This tradeoff, known as the Phillips curve, existed quite clearly in U.S. data from about 1950 to 1970, but then fell apart. x
  • 26
    Fiscal Policy and Budget Deficits
    This lecture reviews the main spending and taxing components in the federal budget, surveys trends in federal budget deficits and federal debt, and explains why budget deficits exploded, contracted, and then exploded again in the last 20 years. x
  • 27
    Countercyclical Fiscal Policy
    Spending increases or tax cuts can mitigate a recession, and spending cuts or tax hikes can fight inflation. In the United States, these countercyclical measures happen automatically to some extent, but some believe government should go beyond these automatic stabilizers. x
  • 28
    Budget Deficits and National Saving
    When government budget deficits are large and sustained, two possible effects can result. First, less financial capital may be available for private investment. Second, the United States may need to attract foreign investors. In the long term, neither is healthy. x
  • 29
    Money and Banking
    Economists define money as whatever serves as the medium of exchange, store of value, or unit of account. Money's various modern definitions— traveler's checks, checking accounts, savings accounts, money market mutual funds, etc.— reveal that money and the banking system are tightly interrelated. x
  • 30
    The Federal Reserve and Its Powers
    The Federal Reserve controls monetary policy, and has great power over the United States and even the world's economy. Yet it is run by presidential appointees and bankers, not by elected officials. Although there are plausible reasons, this remains controversial. x
  • 31
    The Conduct of Monetary Policy
    Controversies exist over exactly how the Federal Reserve should fight inflation. Should it focus exclusively on inflation, or also pay attention to such goals as shortening recessions? Should it act when stock market or housing prices may be forming a bubble? x
  • 32
    The Gains of International Trade
    Economists are deeply supportive of foreign trade; the average person is much more suspicious. The expansion of global trade in the post-World War II period has brought large gains to the United States and to the world economy. x
  • 33
    The Debates over Protectionism
    Pressures to limit imports are called "protectionism." This lecture reviews arguments for protectionism—saving jobs, protecting the environment, and others—and the reasons that most economists find those arguments less than compelling. x
  • 34
    Exchange Rates
    An exchange rate is the rate at which one currency exchanges for another. Exchange rates can be considered as a (misguided) symbol of national economic virility, when in reality they are just a price for currency. x
  • 35
    International Financial Crashes
    This lecture explores international financial crashes—such as those suffered by Thailand, Russia, and Argentina in recent years—and policies that may reduce their risk. But such risks will likely continue as international flows of financial capital expand. x
  • 36
    A Global Economic Perspective
    This lecture discusses global economic prospects over the next few decades. Even with a number of potential stumbling blocks, the chances for several billion people to be far better off are extraordinary. The United States sometimes seems to fear this richer world, but it need not. x

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Course Guidebook Details:
  • 208-page printed course guidebook
  • Suggested readings
  • Questions to consider
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Your professor

Timothy Taylor

About Your Professor

Timothy Taylor, M.Econ.
Macalester College
Professor Timothy Taylor is Managing Editor of the prominent Journal of Economic Perspectives, published by the American Economic Association. He earned his Master's degree in Economics from Stanford University. Professor Taylor has won student-voted teaching awards for his Introductory Economics classes at Stanford University. At the University of Minnesota, he was named a Distinguished Lecturer by the Department of...
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Economics, 3rd Edition is rated 4.5 out of 5 by 128.
Rated 4 out of 5 by from a mix overall well done, with some shortcomings. Solid basic intro - s/b very helpful to any beginner, & even some useful refresher to lightly experienced. Some issues bothered me - more than once, Prof Taylor stated production always equals consumption. But, as a businessman, i know there's something called inventory. There was not 1 mention of inventory, its impact on the economy, how it's existence counters his statement. There was not one mention of the government's ability to print money & the impact of same. In lecture #29 he stated that a bank would go bankrupt if it's loan portfolio fell in value below the face value of the loans. He ignored reserves (though in lecture #30 he did touch on same - but didn't adequately address it), & he ignored the basic fundamental of a bank (any business) having equity, as a (common) protection against bankruptcy. Finally, though not his failing, the course is at least 15 years old - & thus doesn't include how the US has had very low inflation, low unemployment, low interest rates & generally sub par wage increases over the last 10+ years.l Also, because it's stale, it doesn't address an ascendant China - doing as well it it is under a dictatorship.
Date published: 2020-11-09
Rated 3 out of 5 by from Good on basic concepts but way out of date The chief weakness of this course has nothing to do with its contents in themselves: it is the fact that it was produced fifteen years ago (as I write this in 2020). The lectures on microeconomics suffer the least from this weakness, but even then, there is a moment when Mr. Taylor casually observes that the housing market, which at the time of speaking (2005) had been rising and rising, was due for a downturn. The lectures on macroeconomics, which make up the bulk of the series, suffer the most from obsolescence, because they make frequent reference to current affairs. E.g., at one point, Mr. Taylor mentions a forecast that the US national debt will be equal to its GDP by 2050: that has already happened, thirty years early. Mr. Taylor's treatment of the topic of inequality is extremely shallow and perfunctory. By confining his comparison to tranches of 20% of the population he gives no idea of the extreme concentration of wealth in a tiny part of the population in the US, and he seems to think that objections to inequality cannot have any basis other than subjective preference. He does not discuss deleterious social effects of extreme inequality—though, to be fair, he is giving these lectures several years before the publication of the work of Wilkinson and Pickett. A couple of observations on the lecturer. First, Mr. Taylor tries to make some jokes. These moments are absolutely excruciating. I hope that if he redoes the course he will not try this again. Second, while I would never ordinarily mention a lecturer's mode of dress in a review, bad taste in clothing can be taken to such a degree that it is distracting. That is the case here, with Dr. Taylor's sherbet-colored shirts (unconcealed by any jacket) and matching neckties. Truly horrible to behold.
Date published: 2020-10-27
Rated 4 out of 5 by from Good introduction to economics. It takes the reader from the beginning and teaches them the basics needed to understand economics.
Date published: 2020-09-18
Rated 5 out of 5 by from What a Math Based Reason(s) for the Dismal Science This is an excellent "Level Set" course that puts Economics both at national and individual into a quick, practical, rational understanding.
Date published: 2020-07-08
Rated 5 out of 5 by from I am an older learner and have never taken economics before. The lectures are a good length of time and the professor is engaging. His examples make it easy to relate the topics to my life experiences.
Date published: 2020-06-14
Rated 5 out of 5 by from Excellent Review Material It was very well presented and well worth the low cost.
Date published: 2019-05-30
Rated 4 out of 5 by from I thought this was a good course adequately covering the basics. The instructor does a great job given that it is just straight lecture. He presents controversial subjects objectively and acknowledges opinions as such when given. The major flaw was the age of the presentation. Many examples presented as current where 15 years old.
Date published: 2019-03-29
Rated 5 out of 5 by from Outstanding lecturer Just finished (March 2019) the course on Economics given by Dr. Timothy Taylor. For myself, I have no background in Economics other than watching the bank rate and handling my household budget.. First, Dr. Taylor is an outstanding speaker, he is fluent, articulate and from lecture to lecture, consistent in his style; the material is all presented as if it were all done extemporaneously - very impressive. At the beginning of each lecture he outlines what is to be discussed and places this in the context of what is to follow. Subjects are explained clearly with abundant examples of the point to be made. If Economics is one of those subjects that intrigues you but have no specialized knowledge of the subject I would strongly recommend taking this course. Everyone can benefit from knowing something of the way in which the United States, or any other democratic country for that matter, manages its spending and revenue in this era of globalization. Although Dr. Taylor does an impressive job of sticking to the subject of Economics he does point out those areas where government policy can play an important role and how difficult some decisions are when they affect employment and taxation. Dr. Taylor is not afraid to express his opinion on a given topic but he does this without delving into the merits or otherwise of political party positions.. Excellent course!
Date published: 2019-03-20
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