Chapter 1 Introduction

Through computer programming more we understand economic models. Through economic models better we understand computer programming.

The core feature of this course is to teach students how to build an application system based on economic modeling. System programming is an advanced concept. Students who take this course are assumed to have basic programming knowledge especially in R.

Economic models are composed of many different sectors, such as government sector, household sector, and firm sector. Such a fragmented environment, when assembled, becomes an economic system, which in many ways resembles an application system in computer programming.

1.1 Setup

1.2 What is an Economic Model?

Economics is an art of choice. It normally involves with:

choice set: where to choose from? (choice set, constraint, etc)
decision approach: how to choose? (objectives)

In addition to that, when multiple agents present, we need to specify:

each agent’s choice set, decision approach. (players, households/firms, etc)
agent choices interaction mechanism: such as strategic interaction in game theory. (information structure, price taker, etc)
equilibrium mechanism: how are all the choices settled down in the long run? (maybe even what does long run mean.) (nash equilibrium, rational expectation market clearing, etc)

In this course, we will start from choice set (the bottom of a model) all the way to equilibrium mechanism and illustrate in each stage how we can describe and define an economic model (mainly Game Theory Models) in terms of computer programming languages, in both R and Python.