Reading list · Microeconomics
Learning Microeconomics
through a discussion about education
A chapter-by-chapter exploration of microeconomic ideas — using schools, colleges, and universities as the running case study. No prerequisites. An introduction to economics.
Why education?
Microeconomics is the study of how individuals and firms behave, how they make decisions and optimize when resources are limited. They have to pick between options. In economics we call this scarcity and it is the fundamental reason why economics exists. You can’t have your cake and eat it too.
And without being too meta, education is one of the most consequential arenas in which constrained resources, decision making and optimization matter. Every year, millions of students and their parents choose where to enroll, what to study, and how much debt to take on. A public elementary or a top tier private academy? A flagship public state school or an Ivy? And then there is the other side of the story – supply. Institutions decide how many students to admit, what to charge, and where to spend. Governments subsidize, regulate, and occasionally intervene.
These are not just administrative decisions. They are economic ones. In economics we say these decisions are determined by ‘incentives’, ‘constraints’, ‘information’, and market structure. And they are a perfect case study for a practical introduction to the core concepts of introductory microeconomics.
The classroom turns out to be a remarkably good place to learn about markets — not just because of what happens inside it, but because of all the economic forces that lead to a student entering a classroom to be taught by a teacher in the first place.
The goal of this series is to use education as a practical way of understanding microeconomics in action. Rather than working through abstract supply-and-demand diagrams and hoping the reader connects them to the real world, we start in the real world — in dinner discussions about schools, graduation ceremonies, school board meetings, admissions committees, tuition-setting meetings, dorm rooms, dining halls, and state education agencies — and build the economic framework from there.
What you will learn
Each chapter will introduces a core microeconomic concept through a discussion of an education sector issue. The concepts build on one another, roughly following a standard introductory microeconomics course — but the individual chapters are designed so that a reader who is somewhat familiar with basic economics can dip in at any chapter and follow along without having read everything before it.
Market structure
Why universities behave nothing like elementary schools
Supply & demand
The demographic cliff as a real-time demand shock
Human capital
College as investment — and as consumption good
Externalities
Why the private return to education is lower than the benefit to society
Price discrimination
Financial aid as third-degree price discrimination
Information
Rankings, signaling, and the credence good problem
A note on why no prior experience with economics needed
This series does not assume a prior economics course. In fact having taught Principles of Micro to more than a thousand students over the last few years, I do my best to make it even more accessible. The chapters do require a reader who is comfortable sitting with an idea for a few paragraphs before it is explained, and a curious mind who is willing to go further and follow up with the linked additional resources will be much appreciated. The goal is not to simplify microeconomics (although hopefully I do that as well), but to give these abstract concepts a concrete connection in the real world.
Where formal models exist (Becker’s human capital model, Hotelling’s spatial model, Spence’s signaling, Neoclassical model of labor), they are introduced by name and explained in plain language. Readers who want to go deeper will find pointers to the primary economic literature. Readers who just want to understand why tuition keeps rising will find that too.
How to read this series
Read sequentially if you are new to microeconomics — the units build on one another.
Jump to any chapter if you have a specific concept or question in mind — each is self-contained.
Follow the data links — each chapter points to publicly available sources so you can verify the claims yourself.
Syllabus
The chapters
*
What is economics? Some basic concepts
Work or go to school? Opportunity cost and how time can be a scarce resource.
1
How demand works in education
Building the demand curve from first principles — why students choose schools the way consumers choose goods, and what happens when prices, incomes, or tastes shift.
2
Supply constraints in schools and universities
Seat capacity, faculty lines, and accreditation as supply constraints. Why higher education is slow to adjust — and what that implies for tuition over time.
3
Equilibrium and the demographic cliff
What happens when demographic decline shifts the demand curve left — and not all institutions can find a new equilibrium. Market-clearing in real time.
4
Primary schools and perfect competition
Many sellers, a roughly standardized product, relatively free entry — neighborhood elementary schools as a lens for understanding competitive markets and why they may underprovide quality.
5
Universities and monopolistic competition
Each higher-ed institution faces a downward-sloping demand curve for its particular mix of programs, location, reputation, and campus. What that means for pricing, differentiation, and institutions closing when demand shifts.
6
Spatial models — location, location, location
Hotelling’s model and other spatial models can be applied to campus geography but can also be applied to other important features – other than just location.
7
Mergers, acquisitions, and market concentration
IO theory explains why firms merge. Market power, efficiencies or restricting competition. Analyzing the wave of college closures and campus acquisitions/mergers. Using Northeastern’s satellite strategy as a case study in how incumbents extend market power into new geographies.
8
College as investment: human capital
Becker’s framework — education as a durable asset with costs today and returns tomorrow. The rate of return, the discount rate, and why not everyone makes the same calculation.
9
College as a consumer good and service: dining halls, gyms, dorms, and better amenities
Colleges in the US don’t just advertise the classroom, stellar research facilities and world-class faculty. Top universities compete on recreational facilities and gourmet dining — and what consumer theory says about bundled goods and the student experience.
10
Signaling vs. human capital: does college teach you valuable skills or just help signal that you are high quality?
Or is it a mix of both? Spence’s signaling model as an alternative to Becker. If employers cannot observe ability directly, the diploma does the sorting — and that has stark implications for the social returns to education spending.
11
Externalities and spillovers — why education has positive externalities and will be undersupplied by the free market
The educated neighbor who votes, volunteers, and commits fewer crimes. Positive externalities mean market forces left to its own devices will result in less education. This is the economic foundation for subsidies in education from public elementary schools to college grants and loans.
12
Market size and geography
Why does the US have so many universities and why small towns cannot sustain four-year colleges forever. Market size and location as a binding constraint on which institutions survive.
13
Asymmetric information in higher education
Students buy into a four year college experience that they cannot evaluate for years. How rankings, accreditation, and selectivity are used as signals by the general population — and what happens when those signals are fuzzy at best.
14
Principal–agent problems on campus
Boards, presidents, faculty, and students — each with different objectives. What principal-agent theory predicts about executive pay, shared governance, and the persistent misalignment of incentives in higher ed. A discussion of why higher ed can be slow to react.
15
Tuition pricing and price discrimination
Financial aid as third-degree price discrimination — universities charging each student a different net price based on willingness to pay. How it works, why it is legal, and what it means for access.