Adapting Microeconomics Courses

Change often happens incrementally and slowly. In the economics textbook market, for example, there is an unwritten rule that new textbooks cannot differ more than roughly 15% from the standard textbook in order to be ‘acceptable’ (Colander, 2003).

While our book clearly breaks this rule and proposes more far-reaching and fundamental changes in most chapters, in this chapter we focus instead on how existing courses could be adjusted incrementally. By doing so, we hope to assist educators in improving and adapting the courses they teach without needing to rip them up and start again, as well as helping students make suggestions for how this could be done.

First, we set out the typical contents of current courses. Second, we provide our suggested additions and changes. It is important to note that we pose all these suggestions as potential sources of inspiration, not a checklist of all the things that necessarily should be included. After all, there is a practical limit to what can be taught within a single course.

Courses:

Most introductory courses on microeconomics start from the neoclassical idea of the perfect market. This market is generally described as ‘perfect’ in the sense that it is, normatively speaking, optimal, and that it has exactly the following characteristics: rational self-interested behaviour, complete markets, perfect information, perfect factor mobility, no market power, no transaction costs, and no externalities. Later in the course and more advanced microeconomics courses, much attention is devoted to how such perfect markets interact with each other (general equilibrium theory). As well as what happens if one of the assumptions does not apply and the market is imperfect. For example: market power is central in industrial organisation, externalities in environmental economics, transaction costs in the theory of the firm, and information asymmetries in information economics. And finally, welfare economics focuses on whether such market imperfections justify government intervention in the market.

Frequently used textbooks:

When teaching students how markets work, it can be particularly useful to let them explore and analyse real markets and sectors. Here we advise going beyond the typical example boxes in textbooks. While these are useful didactical tools to bring theory across, they do not give students substantial concrete knowledge about the actual economies. Instead, we recommend also treating real markets and sectors as topics in their own right, using theory as a tool rather than as the sole aim of the course.

This could be done by spending a lecture on a sector, its structure,
its different actors, its dominant business models or other ways of functioning, and its relationship to the rest of the economy. Subsequently, students could be given assignments to conduct further analyses of the sector, through case studies and/or quantitative research. Here it can also be especially enriching for students to go and talk to people in the sector. Guest lectures are one form for this, but these contacts could also double as research methods training: interviews or field visits.

One could use our This Month in the Economy Exercises to bring recent developments into the classroom.

For more detail, see Building Block 2: Know Your Own Economy and Building Block 9: Problems & Proposals.

When teaching students microeconomics it is helpful and important to make students realise that what they are learning are theories, not direct descriptions of reality. This might seem like an obvious point for any economist or scientist, but it is often not for students, including ourselves when we started studying economics. Before going into the various theories and ideas, courses could, for example, pay attention to philosophy of science and what it means to scientifically study the (economic) world and develop theories about it.

For more detail, see Building Block 7: Research Methods & Philosophy of Science.

It can be very useful to teach students other theories too, besides neoclassical microeconomic theory. The concept of competition is central to microeconomics and therefore it would help students to explain both the classical and neoclassical conceptions of competition.

Besides markets, households play a key role in microeconomics. Students could benefit from learning about neoclassical ideas to do with rational utility maximisation within the household as well as feminist economics on the unequal division of unpaid labour.

Relatedly, it is important for students to learn that power relations and institutions have an enormous impact on markets and on economic processes more broadly. In this case we advise going beyond the mainstream notions of market power and transaction costs, and also include insights from Marxian and feminist economics to better understand how class, gender and politics play crucial roles in the economy.

Finally, it is relevant to discuss the meaning of consumption with students, as this has a uniquely central role in microeconomics courses. Besides neoclassical ideas, institutional and ecological economics are of particular importance as these focus on how preferences are socially constructed and how material consumption relates to human wellbeing.

Teaching Materials

Microeconomic courses are generally centred on studying markets. The market is, however, only one of the coordination and allocation mechanisms through which economies are organised. Commons and hierarchies (both private and public) are other widespread mechanisms, and crucial concepts for understanding how economies function. Microeconomic courses could thus be enriched by adding other coordination and allocation mechanisms, such as hierarchies and commons. Besides discussing mechanisms, it could also be fruitful to discuss the different forms of economic organisation with students, ranging from multinational corporations, state institutions, and households to democratic cooperatives, family firms and civic organisations.

For more detail, see Building Block 5: Economic Organisations & Mechanisms.

Teaching Materials

Like economics 101 courses, microeconomics courses could benefit from helping students understand what it means to be studying the economy, what it is and why it is relevant. Microeconomic courses can further be enriched by explicitly discussing the variety of normative principles
that guide decision making. Here, it is particularly enriching to discuss both utilitarian welfare criteria and other normative principles such as fairness, legitimacy, and stability. The main goal would be to help students understand normative trade-offs and be able to clearly communicate them to non-economists.

In addition, when discussing markets and other coordination and allocation mechanisms, one could make students familiar with normative debates about what their roles in the economy should be. A particularly relevant debate seems to be whether the entirety of human life and society should be marketized and commodified, or whether there should be ‘moral limits of markets’ and if so where should those limits be.

Finally, students could be introduced to the normative aspects of theoretical approaches. Showing students that analytical tools have values embedded in them can be an eye-opener that will help them in their future careers to be able to identify and distinguish normative and positive aspects. For instance, show a few examples of values embedded in analytical tools, such as the normative assumptions made in cost-benefit analyses or those underlying theoretical approaches like neoclassical, Marxian and ecological economics, as discussed in chapter Foundation 4: Values.

For more details, see Building Block 1: Introducing the Economy and Building Block 10: Economics for a Better World.

Teaching Materials

When introducing students to (micro)economic concepts, it can be very informative for them to understand when and how these were developed. There is no need to set out how the details of the models evolved over time, but it can be helpful to know of a few important breakthroughs in their development, the context in which they occurred and the contributions they made to the debates within the discipline. Besides this history of economic thought, economic history can also enrich microeconomic courses as it can help students get a better understanding of the roles that markets can play in economies. By discussing the history of markets, key insights and facts can be conveyed to students in a different way from explaining models and theories. Key questions could be: how did markets emerge and evolve over time; which different institutional frameworks concerning markets have existed and how did they perform; are there important differences between different kinds of markets, such as product markets in goods and services, and factor markets in land, labour and capital?

For more detail, see Building Block 3: Economic History and Building Block 4: History of Economic Thought & Methods.

Teaching Materials

To create space for the above suggested additions, we advise focussing more on the key ideas and intuitions behind the taught models and devote less teaching time to their technicalities and mathematics. As teaching students to reproduce and work through mathematical models often takes up a large part of the teaching time, this would give the teachers the opportunity to devote more time to practical knowledge, the relevance, institutions, and history. Furthermore, a more even balance between neoclassical economics and other economic approaches could be achieved by decreasing the number of neoclassical ideas and models that are taught.