Dive into the analytical framework of Chicago Price Theory with this master class, inspired by the legendary Economics 301 PhD course at the University of Chicago, taught by luminaries such as Jacob Viner, Milton Friedman, Gary Becker, and Kevin Murphy. Based on the acclaimed textbook by Sonia Jaffe, Robert Minton, Casey Mulligan, and Kevin Murphy, this series demonstrates how economic principles can explain and predict human behavior in markets, with a focus on practical, real-world applications.

Covering topics like taxation, education, housing markets, and government subsidies, the series provides insights into behavior at both the individual level and in the aggregate. It equips learners with tools to model complex economic interactions and provide a toolkit for addressing pressing societal questions.

Whether you’re a student, professional, or curious about market mechanics, this master class offers a unique chance to master foundational economic principles and apply them to real-world challenges.

Part I: Introduction to Price Theory

A longstanding Chicago tradition treats economics as an empirical subject that measures, explains, and predicts how people behave. Price theory is the analytical toolkit that has been assembled over the years for the purpose of formulating the explanations and predictions and guiding the measurement.

Part II: Prices and Substitution Effects

The theory of substitution effects is the foundation of price and quantity indices, which are among the most widely used tools for economic measurement. This section addresses “behavioral economics” from the perspective of the Marshallian demand curve. The distinction between short- and long-run demand, is also examined, which has many immediate and important applications, such as habits and addictions.

Part III: Market Equilibrium

This section introduces the primary focus of the course—markets—and begins with Adam Smith’s compensating differences, which were further developed at Chicago by Sherwin Rosen. Urban economics, the accumulation of human capital, and the siren song of “free lunches” are also addressed. Further along, firms are carefully examined, completing the foundation of the “industry model,” thereby opening a huge range of applications, including trade prohibitions on narcotics, and pricing practices like exclusive dealing and quantity discounts. The industry model is also extended to more than two production factors, allowing examination of durable goods.

Part IV: Technological Progress and Markets for Durable Goods

This section examines changes over time and begins by defining durable goods and extending the industry model to include both a capital-rental market and a capital-purchase market. This is adjacent to the adjustment-cost model of investment and the neoclassical growth model, which are usually considered macroeconomics topics but that still hold relevance for price theory. Applications of the durable-goods models in later sections include such topics as capital-income tax incidence, the determination of labor’s share of national income, and investments in health.

Part V: Applying Price Theory

In this section, Casey Mulligan, along with Robert Minton, explore the many practical, real-world applications of price theory. Topics include the concept of excess burden applied to crime and disease, the effectiveness of price controls in the context of healthcare and labor markets, and human capital investments as they relate to consumer finance, opioids, and vehicle choice.

Bonus: Lessons from BFI’s Price Theory Summer Camp

In this section, taken from the 2023 Price Theory Summer Camp, Kevin Murphy, Bob Topel, and Casey Mulligan offer a comprehensive exploration of foundational and applied concepts in price theory. Murphy provides an analytical framework for mastering economic models, emphasizing simplicity, equilibrium, and the interplay between supply, demand, and elasticity. Topel examines the economic implications of climate policy, human capital, and health improvements, highlighting challenges like carbon pricing and valuing longevity. Mulligan discusses excess burden, externalities, and personal increasing returns, focusing on their practical applications to taxation, regulation, and consumer behaviors. Together, these lectures connect theoretical insights to real-world phenomena, equipping students with tools to analyze complex market dynamics.