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Course ECON 1001: ECONOMICS 2013-14 Term 1 Microeconomics

AIMS AND OBJECTIVES Aims: The Economics 1001 microeconomics course provides an analytical introduction to the core concepts of modern microeconomics for students on the Specialist Economics degree (L100) and the joint degrees in Economics and Geography and Philosophy and Economics. The course provides the foundation for students who will be taking the second year core micro course (ECON 2001), rather than being a stand-alone introduction. Objectives: On successfully completing the ECON 1001 course students should: • Be familiar with the majority of the core concepts in modern microeconomics and able to relate these to a range of applications in the real economy. • Be able to apply these concepts, along with some elementary mathematical techniques acquired on this and other courses, to solve analytical/numerical economic problems. • Be well-placed to make the transition to the more advanced analysis of the core concepts and methods they will encounter on the second year of the degree course. COURSE OUTLINE. The course concentrates on the basic concepts and principles of microeconomics. Although some real world applications are discussed, there is not be time to go into these in any depth (the course ECON 1002 deals with applications). But microeconomics is useful for understanding real world problems. Therefore, in order not to get an unbalanced view of the subject it is essential that you supplement the lecture material with reading in the textbook (which has been selected for its wealth of applications) and other suggested reading. This will both strengthen your understanding of the theory and help you to see the point of it. The course outline includes many of the standard topics in introductory microeconomics (although some basic topics, such as risk and uncertainty, are left until next year’s ECON 2001 course). Those of you with A-level Economics may have covered similar topics. There will be some overlap; but be warned; this course is definitely not a repeat of A-level Economics. In the past some students have learned this the hard way! Not all topics in the following outline will be given equal weight in lectures. Time does not permit. However, with the aid of the problem sets you will do in your compulsory weekly classes and by supplementing the lectures with your own study of an appropriate text you should become familiar with all the basic material. It cannot be emphasised too strongly that you are expected to devote serious effort to the class exercises and to do substantial supplementary reading; attending lectures is necessary but not sufficient.

DWV/ECON1001/2013-14/Aims and objectives/ Outline and reading

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Short and long run costs. From individual to market demand. Consumers' tastes and preferences. Absolute advantage. Consumers and demand. Engel curves for normal and inferior goods. Barriers to entry. Technical efficiency. The agents. Average and marginal costs.1. Price discrimination. Responsiveness of demand to price. Application to labour supply. Comparative advantage. Motivation. Marginal productivity theory of factor demand in the short run and the long run. Duality between cost and production. demand curves. The production function. Supply and Demand Models –I. Comparative statics. Other elasticity measures. The budget set. DWV/ECON1001/2013-14/Aims and objectives/ Outline and reading 2 . Measuring welfare and its changes. Income and substitution effects. Comparative statics (effects of shifts of supply and/or demand curves). consumer and producer surplus. Returns to scale. Supply and Demand Models—II Equilibrium and Applications. The perfectly competitive framework and why we use it. Prices and trade. Indifference curves. The relationship between elasticity and total expenditure (revenue). 4. Simple game theory. 3. Opportunity cost. The equilibrium concept treated verbally. Extensions. Welfare effects of monopoly. Profit maximising decisions for perfectly competitive firms. Constraints. Economic rent. Effects of income and price changes. Production technology. diagrammatically and mathematically. Production and Cost. Applications: Price ceilings and price floors. Efficiency wages and incentive payments. Utility. Introduction. The need for abstraction/simplification. prisoners’ dilemma and economic applications. Gains from trade. Firms’ Decisions and Market Structure. 8. Economies of scale. Determinants of price elasticity of demand. Cost minimisation. sequential games with application to entry and entry deterrance. The production possibility frontier. Factor markets. Sales taxes and their incidence. Oligopoly and other forms of imperfect competition. Equilibrium in competitive factor markets. attainable and unattainable outcomes. The supply of factors of production in the short run and the long run. Isoquants. Monopsony power in labour markets. Comparative advantage and the gains from trade. Historical background. Cournot. Movements along a demand curve versus shifts of whole curve. Bundling. Pure monopoly. Pricing with market power. 7. Short and long run supply. 2. 6. The use and structure of economic models. Opportunity costs. Equilibrium. Own price elasticity of demand. monopolistic competition. Optimisation. Course background and arrangements. Average and marginal product. “Chicken” game and economic applications. Bertrand and Stackelberg models. Consumer equilibrium. Costs for firms with multiple products. Antitrust policy. 5. Efficient and inefficient outcomes. Diminishing returns.

11. but if you can get an earlier edition of the calculus version (Perloff also has a non-calculus version) that would be satisfactory for most purposes. However. Externalities and Public Goods. Moral hazard and adverse selection. Consumption over time.9. currently on its 8th edition but any recent edition would do).e. There are now literally hundreds of such introductory economics textbooks on the market. Asymmetric information. This book is subsequently referred to as PE. For those wanting to go further. don’t worry! The lectures will begin from scratch. are truly novel. Present value (discounting). Public goods. there is less emphasis (but still some) on real world applications and case studies. despite the claims of their authors and publishers. PE is an excellent book but it is not the simplest microeconomics text on the market.how rational are economic agents? Recent challenges to the assumptions of rationality that forms the basis of consumer and firm behaviour in standard neoclassical microeconomics. 3rd edition (2013) published by Pearson. you could also consult a slightly more advanced text. whether or not they have A-level Economics may wish to use a genuinely introductory text in conjunction with PE. Externalities and common resources. Investment decisions when returns spread over time. the lectures will progress quite rapidly. 10. Perloff Microeconomics with Calculus. Market failures. it is more analytical. Many of them are excellent but few. This book is subsequently referred to as VA. A. innovative or radical. one or more of the following supplementary topics will be covered (they will not be in the exam if they are not covered in lectures). 12. Some parts of it go beyond the syllabus of this course. Government intervention If time permits. (Norton. Behavioural Economics -. we will go further/deeper than these books do: DWV/ECON1001/2013-14/Aims and objectives/ Outline and reading 3 . READING. Here are three possibilities: Hal Varian. No prior knowledge will be assumed. Those who have not done any economics before. VA is a little more advanced and more “bare bones” i. Some students. Any of the following well-established market leaders would make a satisfactory supplementary text for this course but remember. The text I currently recommend is: Jeffrey M. Intermediate Microeconomics: A Modern Approach. Inter-temporal Decisions. The market for lemons. The benefits of markets. Textbooks. I will refer to the third edition when giving reading references.

Stiglitz Economics (ST) P. Priniciples and Analysis In all cases it is preferable to use the latest edition. Dornbusch. (Levitt. However. Hey Intermediate Microeconomics Frank Cowell Microeconomics. Hard Heads. John (2002) Reinventing the Bazaar W. Fischer and R.it's quite fun.W. Wells Microeconomics (KW) I recommend that you purchase PE. John (2003) The Truth About Markets Penguin McMillan. However. Begg.E. Estrin. Parkin and D. A. King Economics (PK) J. Freakonomics). Introduction to Microeconomics John D. Tim (2007) The Undercover Economist Abacus Kay. and if you can afford it.A. These are really excellent books and pay much more attention to the institutional setting in which markets work (or fail!) than we have time to cover in lectures. Laidler and S. S. as these books argue forcibly. G. Nordhaus. Norton and Co. S. but I think it is over-rated and over-hyped in relation to some of the books I list above. you may also wish to buy a copy (new or second hand depending on your finances) of one of the supplementary texts. If you are new to economics. For broadening your horizons: Backhouse. Blinder. Economics (BB) M. and/or if you have not studied economics before. Lipsey and K. if you want more UK background. Baumol and A. Chrystal Principles of Economics (LC) P. Harford. If you are having difficulty with the course you should stick to PE and a recent edition of one of the elementary texts listed above. the following may be consulted occasionally D. Supplementary Reading. B. S. For microeconomics this does not matter much. But by all means read it if you wish -.D. Soft Hearts DWV/ECON1001/2013-14/Aims and objectives/ Outline and reading 4 . I would strongly recommend that you supplement your textbook/lecture notes reading with one or more of the following. For those who are coping comfortably with the course and wish to study some slightly more advanced material. Economics (SN) W. Krugman and R. any recent edition will suffice for most purposes. Why not the trendy Freakonomics? I have nothing particularly against it. Economics (BFD) R. BB and ST and KW are American texts (as is PE). SN. and Dubner. Samuelson and W. textbooks improve over time and incorporate more up-to-date examples and applications. But institutions are very important. Roger The Penguin History of Economics Blinder. a recent edition of BFD (new ninth edition now available) may be a good choice for your backup.

Games of Strategy (Although Game Theory is only a relatively small part of this course I would recommend this book: stimulating and fun). S. XXXVI (March). P The Accidental Theorist Meade. is: Bowles. Stephen The Dismal Science (2008. Nicholas (1972) “The Irrelevance of Equilibrium Economics” The Economic Journal. Vol. Capitalism and Freedom Galbraith. The Wealth of Nations Different perspectives: An article. Three other dissenting/radical voices: Marglin. No. J. M. J. The New Industrial State Heilbronner. Bowles has published Microeconomics: Behaviour. S (1998) “Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions” Journal of Economic Literature Vol. The Intelligent Radical's Guide to Economic Policy Smith. Institutions and Evolution (2004. which is (intelligently) critical of the "mainstream" neoclassical approach followed in this course. A. Russell Sage Foundation) which offers a more comprehensive alternative to mainstream neoclassical microeconomics. R. Harvard University Press) Waldfogel. (more difficult). it is probably best read at the end of the course. P The Age of Diminished Expectations Krugman. Joel The Tyranny of the Market (2008. DWV/ECON1001/2013-14/Aims and objectives/ Outline and reading 5 . 328 (December) pp1237-1255. While parts of this article refer specifically to the section of the course on consumption. and Skeath.Coyle. Friedman. 82.K. D The Weightless World Dixit. It is rather advanced but you may find parts interesting and accessible. The Worldly Philosophers Hutton. Harvard University Press) Kaldor. Will The State We’re In: Why Britain is in Crisis and How to Overcome It Krugman. A.