Ec. 101: Principles of Microeconomics, Fall 2015 Page 1 of 5

Department of Economics, Suffolk University

Economics 101: PRINCIPLES OF MICROECONOMICS

Jonathan Haughton Fall 2015

Introduction

Catalog Description: This course introduces students to foundational principles of microeconomic theory, with an emphasis on applications of concepts to management decision-making in specific industry and market settings. It describes and analyzes the interaction of supply and demand and the behavior of the prices of goods, services. It explains the determinations of costs, output, strategic pricing, and governance by firms under conditions of perfect and imperfect competition in a global economy. In addition, it describes the supply and demand for factors of production and the impact of taxes and government regulation and intervention on firms and consumers.

Time and resources are not unlimited, and so we have to make choices. The way in which households and firms make these choices is the subject of microeconomics. Starting with an exploration of tradeoffs – for instance between consumption and savings – the course moves on to discuss the tools of demand and supply, consumer theory, the way firms make decisions about prices and output levels, the impact of different market structures on firm behavior, and issues of poverty and inequality. The course develops the essential principles and tools required for economic analysis, and apples them to examples and cases both from the United States and internationally. A solid grasp of economics is immensely helpful, even essential, for students in business, government, engineering and law. The rigor of economics fosters critical thinking about current events, and so should be useful to almost anyone. Many economists think of themselves as having “hard heads but soft hearts,” and that is not an oxymoron! There are no prerequisites for this course, but some familiarity with graphs and basic algebra is helpful, as is an interest in current, including international, affairs.

Goals The overarching goals of this course are:

To develop a capacity to read, understand, and critically evaluate microeconomic issues as they are presented in the media; and

To apply economic reasoning, techniques, and imagination to problems of a microeconomic nature that arise in management, administration, and daily life.

Learning objectives We have developed a number of formal objectives for this course. At a minimum, upon completion of this course, you should be able to: 1. Recognize the pervasiveness of scarcity and the consequent need to evaluate tradeoffs, and to apply

the method of optimization to specific management problems. 2. Identify the factors that influence the demand and supply of goods and services; and to apply demand-

and-supply analysis to specific market settings to predict pricing and market-exchange outcomes, including the effects of price floors, and of taxation.

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3. Compute elasticities of demand and supply and to relate measures of elasticities to specific market and revenue outcomes.

4. Explain why markets may fail – including the roles played by the problems of public goods and externalities – and outline efficient ways of addressing them.

5. Define economic efficiency, and identify situations, both domestically and internationally, where efficiency may be compromised.

6. Illustrate common productivity and cost phenomena, in both the short and long run, algebraically and graphically, and to analyze managers’ cost-minimizing practices in specific industry settings.

7. Apply the concept of profit-maximizing decision-making to managerial output decisions in competitive, monopolistically competitive, and monopoly industry settings.

8. Identify strategic pricing options for firms with market power, and in oligopoly industry settings, and predict strategic pricing choices in specific market settings.

9. Predict the impact of government action on managerial choice, and on producer and consumer surplus, in specific industry settings.

10. Summarize and explain the key facts related to poverty and inequality worldwide.

Basics

Classes: MWF, 12:00-12:50 p.m. in 4:00-5:15 p.m. in SMT B18. Office: Rosalie Stahl building (73 Tremont St.), room 1014 (on tenth floor). Office hours: Mondays, 12:30-2 p.m., Fridays, 10 a.m. – noon, or by appointment, or drop by. Phone: (617) 573 8127. E-mail: jhaughton@suffolk.edu Web Page: http://web.cas.suffolk.edu/faculty/jhaughton/ I will post course materials here.

Grading The grade for the course will be based on the following: a. Assignments. 20%. There will be ten assignments, generally due a week after they have been

handed out. Unless specified otherwise, you may work on assignments in groups of no more than three. An assignment will lose a fifth of its value for every weekday it is late. Every assignment will require some writing, as well as completion of on-line exercises.

b. Newspaper Article. 7%. You will be expected to write an article that would be suitable for a newspaper or magazine – either an op ed piece or an explanatory article – of 750-800 words. You may choose any topic relevant to the course, and I will also suggest some possibilities. A 200-word plan is due by Friday, October 30.

c. Quizzes. 14%. There will be two half-hour “diagnostic” quizzes, on September 28 and November 16.

d. Mid-term exam. 19%. On Friday, October 23. e. Class participation. 5%. I expect you to engage actively in the course. Some classes will begin

with three “clicker” questions (but I will drop the three worst daily scores). f. Final Exam. 35%. This will cover the whole semester.

Useful Dates Monday, September 28 Quiz 1

Monday, October 12 October break Wed, October 21 Review for mid-term exam Fri, October 23 Mid-term exam Fri, October 30 Outline of newspaper article due Monday, November 16 Quiz 2 November 25-29 Thanksgiving; university closed, no classes

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Monday, Dec 14 Last day of class; review for final exam Monday, Dec 21 Final exam, 11:00 a.m. – 1:00 p.m.

Notes I expect academic honesty. That means that you must never present the work of others as if it were your own. The full policy is here: http://www.suffolk.edu/studenthandbook/19863.php . This is a three-credit course. On average, you are expected to spend about 9 hours per week working on the course, including class time, the assignments, studying the textbook and other readings, and preparing for exams and the “newspaper article”.1 I expect you to engage consistently in the course throughout the semester.

Resources From time to time, many students experience stress and anxiety, lack of motivation, or other health problems. Don’t hesitate to use the resources of the Counseling Center (http://www.suffolk.edu/offices/989.html ) or the Office of Health and Wellness Services (http://www.suffolk.edu/campuslife/5095.php ), or encourage a friend to use these resources, if and when the need arises. You can also drop by the offices, which are on the 5th floor of 73 Tremont St. If you have a disability that might require special accommodation, there are details at http://www.suffolk.edu/disability The Center for Learning and Academic Success (CLAS, at http://www.suffolk.edu/academics/53809.php ) runs a study group for Economics 101. It also provides tutoring, academic coaching, and academic skills workshops. CLAS is open from 8 a.m. to 8 p.m. every weekday; just walk in – it is on the second floor of Sawyer Library.

Keeping a Journal Might I encourage you to keep a journal? At least two or three times a week you should write an entry, which summarizes and comments on relevant articles from newspapers and magazines, or programs on TV; a total of two dozen entries will suffice. Clearly the items you report and discuss should have some relevance to Southeast Asia. The journal should be handed in by the last day of class. Here is the incentive. I will grade each journal on a scale of 0 (no journal) through 3 (a thorough, informative, and interesting piece of work). After assigning regular letter grades, I will assign extra credit on the basis of the journals. A good journal (3 points) will raise your grade by a notch - e.g. from A- to A, C+ to B-, etc. Lesser journals will get proportionally less credit.

Reading List and Syllabus Required Text Materials:

Michael Parkin. Microeconomics, third custom edition for Suffolk University. Pearson. 2016. The Suffolk custom edition combines material from the following two sources:

Michael Parkin. Microeconomics, twelfth edition. Pearson. 2016 Paul G. Farnham. Selected Case Studies from Economics for Managers, third edition. Pearson. 2014.

1 Further information on credit hours may be found at http://cihe.neasc.org/downloads/POLICIES/Pp111_PolicyOnCreditsAndDegrees.pdf

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The textbook also has an associated software package called MyEconLab, which is recommended – both for homework exercises, and as an aid to mastering the material. The book will be supplemented by a variety of cases, some of them from The Economist (which I highly recommend) and from newspapers such as the Wall Street Journal and the Financial Times. 1. Introduction. Responding to Scarcity.

Scarcity and the need for choice. The production possibilities curve. Applications: guns vs. butter, growth vs. consumption. Comparative advantage and trade. Case study: Farnham: Micro- and Macroeconomic Influences on the Global Automobile Industry

Parkin, chapters 1 and (especially) 2.

2. Demand and supply

Demand, supply, and equilibrium. Shifting demand and supply curves and predicting price effects. Parkin, chapter 3. Case Study: Farnham: Demand and Supply in the Copper Industry.

3. Using demand and supply: price floors and ceilings, tax incidence Price floors (minimum prices) and price ceilings (maximum prices) and their economic effects. Tax incidence. Applications: EU Common Agricultural Policy; minimum wage. Parkin, chapter 6, pp. 127-138.

4. Elasticity Elasticity measures and why they are useful. Measuring elasticity. Application to gasoline. Parkin, chapter 4. Case study: Farnham: Demand Elasticity and Procter & Gamble’s Pricing Strategies

5. Market efficiency: domestic Consumer and producer surplus. Why markets deliver efficiency (sometimes). Inefficiencies due to taxes, subsidies, restrictions and market failure. Trade and tariffs. Applications: Sales tax. Cotton subsidies. Illegal drugs. Illegal downloads. Parkin, chapter 5.

6. Market efficiency: international Importance of trade. Winners and losers from trade. The lure of protectionism. Parkin, chapter 7. Case Study: Farnham: The iPhone in China. The Economist, June 27, 2015. Farming in India: In a time warp. The Economist, June 20, 2015. Trade disputes: Torture by tariff.

7. Consumer theory Utility and indifference curves. Generating demand curves. Application: The fifty cent gasoline tax. Parkin, chapters 8 (pp. 177-180) and 9.

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Case Study: Farnham: The Use of New Technology to Understand and Impact Consumer Behavior.

The Economist, July 27, 2015. Bread in France: Forget the baguette. The Economist, May 9, 2015. Schumpeter: The Piggly Wiggly way.

8. How firms make decisions Economic vs. accounting profit; technical vs. economic efficiency; production functions; short- and long-run cost curves.

Parkin, chapters 10 and 11. Case Study: Farnham: Production and Cost Analysis in the Fast-Food Industry.

9. Market Type 1: Perfect Competition The conditions required for perfect competition. Implications for entrepreneurs. Parkin, chapter 12. Case: Farnham: Competition and Cooperative Behavior in the Potato Industry.

10. Market Type 2: Monopoly

Firm behavior when there is only one producer. Why monopolies are usually inefficient. Parkin, chapter 13. Case Study: Farnham: Changing Market Power for Eastman Kodak Co.

11. Market Type 3: Imperfect Competition

Monopolistic competition; oligopoly; games of strategy, including prisoners’ dilemma. The origins and role of antitrust laws. Parkin, chapters 14 and 15. Case Study: Farnham: Oligopoly in the Airline Industry. Case Study: Farnham: Airline Pricing Strategies – Will They Start Charging for the Use of the

Lavatories? The Economist, June 20, 2015. Aircraft makers: Keep seatbelts fastened.

12. Input Markets

The market for labor; capital and discounting; natural resources and sustainability. Application: why athletes earn so much (sometimes). Parkin, chapter 18.

13. Inequality and Poverty

Measuring inequality and poverty. Sources of inequality and poverty. Policy options. Application: negative income tax. Parkin, chapter 19. The Economist, June 20, 2015. RG-bargy. The Economist, Sept 5, 2015. Tackling poverty: It’s expensive to be poor.