Haverford College

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ALL YOUR QUESTIONS ABOUT THE COURSE ANSWERED RIGHT HERE
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SPRING 2007-INTRODUCTORY MICROECONOMICS-ECON 101b
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ABOUT THE COURSE

How is it possible for billions of people around the globe to cooperate without talking to each other or even knowing of each other’s existence? Microeconomics answers this question. It also develops a common set of tools used in all the other fields of economics. These tools help us analyze how people behave in a great variety of roles: as consumers, workers, employers, investors, plaintiffs, defendants, parents, spouses, and so on.

ORGANIZATION

Classes: Tuesday and Thursday, 10:00 - 11:30 a.m. and 11:30 - 1:00 p.m in Stokes 14.

Instructor: Vladimir Kontorovich, Stokes 203c, tel. 1074, e-mail: vkontoro.
Office hours: Tuesday and Thursday, 1:00 - 2:00 p.m. or by appointment. Please feel free to send me e-mail at any time! You may also call me at home (609-371-4826). Tell me the number you are calling from and hang up; I will call you right back.

Teaching Assistant: Ben Marsden will be happy to help you with questions concerning the course. You can make an appointment by e-mail (bmarsden). He will also hold regular office hours and/or review sessions at 8-9 pm on Sunday in Stokes 18.

COURSE REQUIREMENTS

Classes. In class I present a somewhat different approach to the material than that in the textbook. You are responsi¬ble for both the class and the textbook material. Regular class attend¬ance is ex-pected. Straight lecturing is both boring and not very instructive. Class participation keeps you awake and helps you learn better. But in order to be able to contribute to class discussions, you have to review the material beforehand and stay informed.

Textbook. Microeconomics and Behavior, Sixth Edition, by Robert H. Frank (New York: McGraw-Hill, Inc., 2006), and the accompanying Study Guide are available from the college book-store. Additional readings (on line) will be specified as we go along. The Course Outline (below) indicates approximate dates by which readings are due. The actual speed at which we proceed de-pends on how hard you work to digest the material.

Homework (problem sets) will be assigned and collected a week later. Answer sheets will be dis-tributed for returned assignments. When doing your homework, remember:
• Provide full answers, showing all the steps in your reasoning;

• Do not just claim the result: try to prove it as rigorously as you can;

• Appearance matters! This includes: legible writing; numbered and stapled pages;
graphs carefully drawn using a ruler, their axes labeled; intercepts, maxima, minima, etc. all clearly labeled. Graphs may be drawn on separate pages. Professor does not carry a stapler with him.

• Points will be taken off for failure to follow these directions.

Homework will be evaluated on the scale from 1 (wrong) to 3 (correct). The primary function of these evaluations is to let you and me know how you are doing in between the tests.

Exams and grading:
a. Final grade composition: two take-home midterms - 30% each; take-home final exam - 40%.

b. Provisional dates of midterms:
- on Choice and Demand (Chapters 1, 3-5) e-mailed to you on March 8, due back March 20
- on Production and Supply (Chapters 9-11, 2) e-mailed to you on Apr. 12, due Apr. 17
- cumulative final exam: exam week in May

c. Homework grades and class participation will be used to decide the borderline cases. For exam-ple, if a final grade is low 4.0, and you did poorly on the homework, it is 3.7 you get.


HOW TO STUDY

Refresh your memory of middle and high school topics such as how to draw and read a graph; lin-ear functions and their graphs.

Three layers of learning. When studying a foreign language, you first learn the words by memorizing them. Then you learn to put the words together by practicing - reading and writing sen-tences. These two steps allow you to progress to the ultimate objective: order dinner at a restaurant abroad, or enjoy a murder myste¬ry novel in another language.
The study of economics is similar to the study of a foreign language. First you need to learn the key concepts - by memorizing their precise definitions. Then you learn to use these “words” of the economics language by solving problems. You will have plenty of practice in that. Finally, you will be able to understand economic reasoning about the social phenomena and public policy.

Exercise a lot. Economics cannot be learned by just passively reading a book. You need to do it, e. g., by solving problems.
- complete homework assignments and review answer sheets;
- solve problems in the Study Guide (it gives answers);
- do in-chapter exercises - then check the answers in the end of the chapter

Getting help:
- attend review sessions (these will be scheduled on demand);
- come and see me in my office with any problems you might have;
- Ben is always ready to answer your questions; she will also conduct review sessions;
- use e-mail and telephone to ask me questions that arise in between office hours and review ses-sions.


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COURSE OUTLINE
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Textbook chapters and sections omitted in this outline are optional. Dates are approximate and depend on the speed with which we progress.


I. WHAT ARE WE GOING TO STUDY, AND HOW?

A. The Puzzle of Economics. Smith, Adam, An Inquiry Into The Nature And Jan. 23
Causes Of The Wealth Of Nations, 1776. Book 1,
CHAPTER I “Of the Division of Labour”, http://www.adamsmith.org/smith/won-b1-c1.htm
CHAPTER II “Of the Principle which gives occasion to the Division of Labour”,
http://www.adamsmith.org/smith/won-b1-c2.htm

Adam Smith is considered the founder of economics. In these two short, easy chapters he formu-lated the puzzle, which our discipline has been trying to solve for the next 230 years. He also hinted at some answers. His ideas remain as counterintuitive, paradoxical, and challenging as they were back in the 18th c.

Adam Smith is interested in explaining the wealth of nations, and you might wonder, what wealth? Most of you think you’ve been brought up in quite modest conditions. Here, for your in-formation, is a sketch of how much wealthier we have become in the course of the last hundred years:
J. Bradford DeLong, “Cornucopia: Increasing Wealth in the Twentieth Century”
http://www.j-bradford-delong.net/TCEH/2000/TCEH_2.html
Read it at your leisure, it contains some mind-boggling data.

- Robinson Crusoe and the benefits of specialization. A numerical example of comparative advan-tage in action.

B. Economic Method. Chapter 1. Jan. 25
- Opportunity cost; marginal, total, and average magnitudes; positive vs normative.

II. ECONOMIC ACTORS

A. CONSUMERS

i. Choice. Chapter 3. Jan. 30, Feb. 1, 6
- Rationality, preferences, indifference curves (pp. 71-77), the budget constraint (pp. 62-70),
consumer equilibrium (pp. 78-81).
Note: chapter 3 starts with budget constraint, in class we start with preferences.

ii. Applications to Real Life Problems Feb. 8, 13, 15
- Shipping good apples out (in class), lump sum principle (pp. 82-84),
benefits of exchange (pp. 588-96).

iii. Demand. Chapter 4. Feb. 20, 22, 27
- Income and substitution effects, individual demand, market demand, elasticity

v. Applications to Real Life Problems. Chapter 5, pp. - 172. March 1
- Consumer surplus (p. 162), diamonds and water paradox (in class), more lump sum principle, price discrimination
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FIRST MIDTERM EXAM: E-mailed to you Mar. 2, due back Mar. 14
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B. FIRMS

i. Production in the Short Run. Chapter 9, p. - 299 Mar. 6, 8
- technology; production function; definition of –runs; marginal and average product; diminishing marginal returns

ii. Cost in the Short Run. Chapter 10, p. -337 Mar. 20
- cost function; marginal and average cost and relation to diminishing marginal returns

iii. Short-run supply decision Chapter 11, pp. 364-367, 370-374 DID ON MARCH 6 Mar. 22
- profit maximization and the Rule of Life no. 1; shut-down decision; market supply

Do PC market and short run adjustments here, to show some applications. Only later do the long run production and cost.

iv. Production & Cost in the Long Run. Mar. 27, 29
Chapter 9, pp. 300 - 308; Chapter 10, pp. 338-
- returns to scale; economies and diseconomies of scale; isoquants; cost minimization
and the Rule of Life no. 2; applications to real life problems

III. PERFECT COMPETITION

A. CONSUMER PRODUCT MARKETS

THERE WILL BE NO CLASS ON 4/3; will make up later


i. Market Equilibrium and some applications. Chapter 11 Apr. 3, 5 Definition of market and perfect competition: strawberries (p. 368, 28-33)
- equilibrium disturbed and reestablished; shortages and excess supply (pp. 35-7, 376);
- short-run adjustment, long-run adjustment, diminishing returns on the extensive
margin (pp. 383-394)

ii. Efficiency: evaluation of economic outcomes. Apr. 10, 12
- Prices and rationing (pp. 34-5, 40); producer surplus (pp. 379), Pareto in the
box (pp. 591-3); social and private marginal costs and benefits (in class)


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SECOND MIDTERM EXAM: e-mailed to you Apr. 6, due back Apr. 11
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iii. Applications to Real-Life Problems (pp. 35-9, in class) Apr. 17, 19
- Taxes and subsidies, price floors and ceilings, tariffs

B. FACTOR MARKETS

i. Labor. Chapter 14. - p. 518 Apr. 24

ii. Factor incomes: rent. Chapter 15, pp. 569-70 Apr. 24


IV. PERFECT COMPETITION BREAKS DOWN

i. Monopoly. Chapter 12, pp. – 426, 435-47. Apr. 26

ii. Imperfect competition Chapter 13, pp. 478-484; skim pp. 453-475 Apr. 26
(if it gets difficult, skip)

iii. Absence of Markets: Externalities. Chapter 17, pp. – 620, 629-238. May 1

iv. Absence of Markets: Public Goods. Chapter 18, pp. -663. May 3