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API-101: Markets and Market Failures

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Harvard Kennedy School

API-101: Markets and Market Failure

Description: This course applies microeconomic reasoning to public issues, policies, and programs. It considers economic incentives and organizations; models of economic behavior, including markets, the absence of markets, and interventions in markets; the price system and how it works; and policy objectives and instruments. All sections cover a common set of core topics; the pedagogical approaches vary with the individual instructor. Prerequisite: The A section of this course presumes the ability to use basic calculus.

Source: At and (accessed 22 January 2013).


Additional course description from the syllabus

The textbook for this course is Microeconomics, Seventh Edition, by Robert S. Pindyck and Daniel L. Rubinfeld (Prentice-Hall, 2009). Be aware, however, that the course is only loosely linked to this book and you are encouraged to use other textbooks if this one does not meet your needs. Many other standard microeconomic textbooks (as well as older editions of Pindyck and Rubinfeld) cover the same material. Students are encouraged to peruse through other textbooks to see if the material is covered or explained in ways that is more to their liking (use the index to the book if you are looking for a particular concept). Some of these alternative textbooks (on reserve at the HKS Library) are:

E. and J. Browning, Microeconomic Theory and Applications (Harper Collins).

S. E. Landsburg, Price Theory and Applications (Dryden Press).

E. Mansfield, Microeconomics: Theory and Applications (Norton).

Nicholson, Intermediate Microeconomics and Its Applications (Dryden Press).

P. Trivedi, Applied Microeconomics for Public Policy Makers (International Management Publishers).

H. Varian, Intermediate Microeconomics: A Modern Approach (Norton).

Some books provide a more engaging description of the economic way of thinking. Students might wish to complement the textbook and classroom presentations by looking at this material. These books include:

David Friedman, Hidden Order: The Economics of Everyday Life (Harper, 1996).

Charles Wheelan, Naked Economics: Undressing the Dismal Science (Norton, 2003).

Steven D. Levitt and Stephen J. Dubner, Freakonomics (Morrow, 2005).

Commentary by the Atlas editors: The class titles provide an excellent list of teaching topics for the Economic Analysis for Public Management subject:

The basics of supply and demand. Market equilibrium

Determinants of supply and demand. Elasticities

Supply and demand in action

Policy application: Minimum wages and rent control

Indifference curves; budget lines; optimality conditions

The law of demand; income and substitution effects; market demand

Policy applications: Vouchers versus subsidies

Policy applications: Taxes, lump sum transfers, kinked budget lines, intertemporal choice

Production theory

Profit maximization and competitive supply

Perfect competition and efficiency; consumer surplus and producer surplus


Price supports, production quotas

Taxes, subsidies, price controls revisited


Price descrimination and regulation

Oligopoly; Cournot model

Prisoner's dilemma; basics of game theory

Asymmetric infomation: lemons and signaling


Applications of externalities; polution control

Public goods and commons problems

Page created by: Ian Clark, last updated 22 February 2013. The content presented on this page, except in the Commentary, is drawn directly from the source(s) cited above, and consists of direct quotations or close paraphrases.


API-101 Sections B, C, D, Fall 2012, George Borjas and Pinar Dogan.pdfAPI-101 Sections B, C, D, Fall 2012, George Borjas and Pinar Dogan
API-101A Syllabus Fall 2012, Chris Avery.pdfAPI-101A Syllabus Fall 2012, Chris Avery

Important Notices
© University of Toronto 2008
School of Public Policy and Governance