EC0 100 Fall 2011 Henry Farber Page 1 of 6 Introduction to Microeconomics Professor Henry Farber farber princeton edu email 107 Fisher Hall O ce 609 258 4044 O ce Phone O ce Hours Monday and Tuesday 1 30 3 00 M W 11 00 11 50 McCosh 50 Lecture Qi Ge qge princeton edu Organizer Course Description Economics is the study of how individuals rms and the institutions of an economy e g markets produce and allocate scarce resources We will examine 1 the decision making of individuals regarding what and how much to consume 2 the decision making of rms regarding what and how much to produce 3 how these decisions are coordinated for better and for worse through market and other institutions and 4 the role of public policy Classes There are two lectures and one precept each week Lectures start promptly at 11AM Please be seated on time All changes of precept must be arranged through the organizer Required Text Parkin Michael Microeconomics tenth edition The text is available at Labyrinth Books An earlier edition or even another microeconomics text will almost surely su ce although you will be on your own to gure out the relevant readings Other reading assign ments will be made as needed during the term Course Requirements and Grading Final Examination Mid Term Examination Problem Sets Participation in Precepts 40 30 30 The midterm examination is scheduled for the evening of Tuesday October 25 The nal examination will take place during the nal examination period at end of term There will be eleven problem sets one per week other than mid term week during the term scale I will drop the one problem set These problem sets will be graded on a 0 with the lowest grade Problem sets must be turned in at the beginning of lecture in the lecture hall on the due date Late problem sets or problem sets turned in elsewhere will not be graded No excuses Other Important Points We will be covering a lot of material and it will pay to not fall behind In order to reduce your note taking burden and to allow you to focus on the lecture I will post lecture notes on Blackboard be responsible for all material you will study on your own The posted lecture notes will not always include all material covered in lecture and you will I will not always cover all of the slides in lecture Some will be covered in precept and some I do not closely follow the text The text and the lectures are complementary resources You will get more out of this course if you discuss the lectures readings and ideas with your classmates and others You are also encouraged to share ideas regarding the problem sets but the work you turn in must be your own and prepared by you alone EC0 100 Fall 2011 Lecture Course Outline Henry Farber Page 2 of 6 1 Introduction What is economics I Parkin ch 1 ch 2 What is economics What does it mean to think like an economist Economics as a Social Science Using Resources E ciently Marginal Analysis The production possiblities frontier 2 What is economics II Parkin ch 2 ch 3 Division of Labor Comparative advantage Competitive Markets and E ciency E ciency vs Equity Demand and supply Market Equilibrium 3 Consumer Choice Utility as the Foundation of Demand Parkin ch 8 pp 179 186 ch 9 pp 203 210 The convenient notion of utility Marginal utility Opportunity cost Budget constraints and indi erence curves Consumption Choice as the result of utility maximization 4 Consumer Choice Derivation of Demand Curves Parkin ch 8 pp 187 198 ch 9 pp 210 218 Individual demand curves Income and substitution e ects of price changes Market demand curves Consumer Surplus 5 Decision Making Under Uncertainty Parkin ch 20 pp 465 471 Incomplete information Probabilistic outcomes Expected Utilty attitudes toward risk insurance EC0 100 Fall 2011 Henry Farber Page 3 of 6 6 Decision Making Under Uncertainty continued Elasticity I Parkin ch 4 pp 83 90 Risk seeking behavior gambling Elasticity De ned Elasticity Calculated Price elasticity of Demand 7 Market Demand and Elasticity Parkin ch 4 pp 91 99 Income elasticity Cross elasticity What is a market Substitutes and complements Movements along versus shifts in demand curves 8 Foundations of Supply Parkin ch 10 pp 227 233 ch 11 pp 251 256 The Firm and its goals Accounting pro t vs economic pro t Production functions Cost functions Total average and marginal products The law of diminishing marginal returns 9 Foundations of Supply cont d Parkin ch 11 Short run costs Long run costs Economies of scale Equivalence of pro t maximization and cost minimization 10 Perfectly Competitive Markets Parkin ch 11 pp 239 259 Firm level decisions in a competitive market Short run equilibrium for the rm The importance of free entry and exit Long run equilibrium of the rm Long run equilibrium of the industry Competition and E ciency 11 Question and Answer Session before Midterm Examination 12 Welfare Economics What s so good about competitive markets Parkin ch 5 ch 12 pp Henry Farber Page 4 of 6 EC0 100 Fall 2011 290 291 Maximizing quantity e cient resource allocation Consumer surplus producer surplus and total surplus The invisible hand the role of prices The role of information What about equity 13 Imperfect Markets I Monopoly Parkin ch 13 Market power Marginal revenue of a monopolist Pricing of a monopolist Output of a monopolist and welfare loss Natural monopolies Are they common Monopolistic competition and di erentiated products Price and output levels under monopolistic competition Oligopoly When a few large rms dominate Models of strategic interaction game theory Nash equilibrium The prisoner s dilemma is everywhere 14 Imperfect Markets II Monopolistic Competition and Oligopoly Parkin ch 14 ch 15 pp 341 355 15 Government Regulation of Markets and Anti Trust Policy Parkin ch 15 pp 356 359 ch 10 pp 237 241 Maximizing surplus consumer surplus producer surplus or total surplus Government intervention in markets Can economics inform the political process Regulating markets Anti competitive activities of rms Measures of market structure Anti trust policy 16 Taxation Parkin ch 6 pp 133 141 Income sales and property taxes Horizontal and vertical tax equity Tax incidence who pays E cient taxation Subsidies as reverse taxes Quotas EC0 100 Fall 2011 Henry Farber Page 5 of 6 17 Market Failures I Externalities and the Role of Government Parkin ch 16 ch 17 18 Market Failures II Public Goods and the Role of Government Parkin ch 16 Missing or incorrect property rights and externalities Taxation as a remedy Regulation as a