Introduction

Microeconomic Analysis

Economics

  • Is the study of relationships that make up/influence/shape the economy
  • For example, these relationships might be between
    • The government and a firm
    • Two firms existing in the same market
    • A consumer today and that consumer sometime in the future
  • Our understanding of these relationships is almost always partial.
    • Because the world changes
    • Because we often cannot run experiments

Article by Raj Chetty

Economics

  • To better understand these relationships, Economists make use of models and data. 
  • In this class, we'll focus on the modeling aspect. That is, how economist develop and use models to make guesses/predictions about these relationships.
  • The tools and concepts that we'll work with to develop these models (python, automatic differentiation, implicit functions, optimization) are heavily used in the data science community. 

The What and the Why of an Economic model

The What

Solver

Focus

Real World

Model

Question

The Why

  1. To clarify your own thinking
  2. To be able to communicate your thinking to others
  3. To evaluate a policy under hypothetical or past scenarios
  4. To better interpret the statistic results of an analysis

Economic-based Data Science

Components

Real World Events

Optimization

Uncertainty

Math on the Computer

Real World Events/Questions

  • How has the pandemic effected the labor supply for teachers?
  • Does health insurance improve financial credit?

    •  
  • Does legal aid in eviction cases improve housing stability?

Optimization

Uncertainty

Math on the computer

def f(x): 
  return 2.0*x**2

Where to write math

On the Computer

  • Easily capture heterogeneity
  • Easily model uncertainty
  • Solving the model is easy (call a solver!)
  • Build the model step-by-step
  • Easy to visualize
  • Hard to capture heterogeneity without some planning
  • Hard to model uncertainty without more statistics 
  • Manually solve the model (takes time)
  • Hard to build the model step-by-step
  • Cannot visualize most aspects

On Paper

Professor writes down the Model

Student solves optimization problem

Learning how to solve well-posed problems

Typical class

Lecturer writes down question

Student writes down the model

Solver solves the optimization problem

Judgement

Calculus

Statistics

Newspapers/Podcasts

Psychology

Sociology

Finance

Core of Economics

This Class

Write down question

Write down the model

Solver solves the optimization problem

You

Real World Economics

Summary