Lecture Notes for ECN 102: Microeconomics

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1 Lecture Notes for ECN 102: Microeconomics Spring 2016 Matt Sveum Moberly Area Community College 1

2 Contents A Syllabus 3 B Introduction to Economics 7 1 Cost-Benefit Analysis 8 2 Markets Demand Elasticity and Demand Shifts Supply Equilibrium Economic Surplus & Price Controls Individual Economic Surplus Market Economic Surplus Price Controls Taxes 15 5 Subsidies 17 6 PPF & Trade Production Possibilities Frontier Gains from Trade Trade Restrictions The Export Market The Import Market Types of Firms; Accounting Profit & Economic Profit Profit Production & Cost Production Cost Market Types & Perfect Competition Perfect Competition Monopoly Game Theory Utility Theory 32 2

3 A Syllabus CATALOG # ECN CIP# DATE: October 2004 Moberly Area Community College Syllabus ECN 102: Microeconomics Current Term: Spring 2016 Instructor: Matt Sveum Office Hours: By appointment Contact Information: Classroom Number: 145 Class days and time: Tuesdays & Thursdays 4:30-5:55pm Catalog Description: ECN 102 Microeconomics (3-0-3) A description and analysis of the behavior of households and business firms in the economy. The course includes the analysis of supply and demand, price and output determination in competitive and noncompetitive markets, the cost of production of goods and services, resource markets, economic institutions and international trade. Prerequisite(s): None Text: McConnell, Brue, and Flynn s Microeconomics, 20th Edition, McGraw-Hill Publisher. You may use an old edition of the textbook. You will never have problem sets out of the book, and the material hasn t changed enough to warrant requiring the new edition. A copy of the 18th Edition is on reserve in the Media Center in the basement. On-line classes may have a different textbook, please check MACCs Booklist bookstor/disclaimer.shtml Other Requested Materials: You are not required to buy access to any news sources, but following current events will help you to follow what we are discussing in class. I will try to bring in real-world examples, so reading a newspaper of your choice online (most of the time these are free) will help you with these discussions. Purpose of Course: Microeconomics is designed to help the beginning student comprehend the principles essential for understanding the basic economizing problem, specific economic issues and the policy alternatives. It is also designed to help the student to understand and apply the economic perspective and to reason accurately and objectively about economic matters. Course Objectives: 1. To introduce the student to the field of economics and an understanding of the problems of choice. 2. To examine the concept of scarcity of resources and their allocation in a market system 3

4 3. To consider the impact of economics upon society 4. To gain an understanding of unemployment and inflation and potential solutions to these problems 5. To introduce the student to the role of the United States in a world economy 6. To understand a variety of contemporary problems facing society including pollution, income distribution, and failings of the market system Course Content: 1. Introduction to economics and the economy 2. Consumer behavior 3. Microeconomics of product markets Assessment of Student Learning: 1. Attendance, Participation, and Worksheets (15%): I will take attendance during every class period. I also expect that you participate in class. This includes asking questions during lecture, but it also means contributing while working in groups. Economics requires active learning, and these points are designed to encourage you to participate. I will also give periodic extra credit this semester. These extra credit assignments will generally require that you complete them in class, meaning students who are absent will not be able to earn the extra credit. Additionally, after every topic we will have an in-class worksheet covering the material. Worksheets are due before you leave class, and will be graded based on completion. If you miss class on a day that we do a worksheet, you can print it off from Canvas and turn it in at the start of the next class for half credit. 2. Homework (20%): The homework is designed to prepare you for the exams. If you can do the homework, you will be in good shape for the exams. Assignments must be readable and must be stapled. If you do not staple your assignment, you will have to buy a staple from me for 1 point. You are allowed to work with classmates, but it is imperative that you understand the work that you turn in. Depending heavily on a classmate to compete the assignment may get you a good grade, but you will be very unhappy with your exam performance. Homework will be graded out of 10 points based on your understanding of the material. 3. Midterms (40%): There will be two midterm exams given this semester on February 11 and March 17 in class. They will be worth 20% apiece. Exams will be a combination of multiple choice and short answer questions and you will have 90 minutes to complete them. Exams are closed book. You may NOT use cell phones as calculators. Midterm exams are not cumulative. I will generally not give make-up exams, so plan on being in class on those two days. 4. Final Exam (25%): There will one cumulative final on May 5. This will cover material from the entire semester, although it will be weighted toward the material after the second midterm (about 2/3 new and 1/3 old material). As with the midterms, the final is closed book and only simple function calculators will be allowed. 4

5 5. Grading Scale: Grade Percent A B C D F 0-59 Instructor Policies: Attendance: Any student who misses two consecutive weeks of class during a regular sixteen week semester or the equivalent proportion of the class time during a shorter session will be dropped from the class by the instructor unless acceptable justification is supplied. Additionally, any student who misses more than one-fourth of the entire number of in-seat class meetings in a regular 16- week semester or the equivalent proportion of class time during a shorter session, may be dropped from that class by that instructor if, in the opinion of the instructor, the student does not have reasonable opportunity to succeed in the class. Student attendance must be defined in a different manner for online, hybrid, and virtual courses. Student attendance in these courses is defined as active participation in the course. Online, hybrid, and virtual courses will, at a minimum, have weekly mechanisms for student participation, such as any or all of the following methods: 1. Completion of quizzes or exams 2. Submission of assignments 3. Participation in threaded discussions 4. Communication with the instructor A student who does not participate in an online, hybrid, or virtual course for two consecutive weeks will be dropped by the instructor unless acceptable justification is supplied. Attendance and Lecture: Attendance in class and textbook reading are not substitutes. Simply reading the textbook will not be sufficient to do well in this class. It is highly suggested that you read the relevant chapters ahead of lecture, which will prepare you to ask questions. Tardiness: Please be on time. I know that sometimes events necessitate being late, but I expect that you will make every effort to be in class on time. Technology: Because of the distractions they cause, and because it is very hard to take good notes on a laptop in an economics course, you are not allowed to use a laptop in class. I am okay with you using a tablet, but you should be using it for the class and not for other activities. Communication: You are expected to check Canvas regularly. I will post all assignments on Canvas, so you can find homework on there if you miss class. I will also announcements from time to time. You are responsible for checking your and any information ed out. 5

6 Make-up and late work: I will not accept any late work. I will drop two homework and worksheet grades to account of this no late work policy. Americans with Disabilities Act Statement: Students who have disabilities that qualify under the Americans with Disabilities Act may register for assistance through the Office of Access and ADA Services. Students are invited to contact the Access Office to confidentially discuss disability information, academic accommodations, appropriate documentation and procedures. For more information, please call either the Moberly office at (660) x or the Columbia office at (573) x 12120, or visit our web page at Title IX Statement MACC maintains a strict policy prohibiting sexual misconduct in any form, including sexual harassment, sexual discrimination, and sexual violence. All MACC employees, including faculty members, are considered mandated reporters of sexual misconduct and as such are expected to contact the Title IX Coordinator when they become aware, in conversation or in writing, of an incident of sexual misconduct. For more information on this policy or to learn about support resources, please see or contact Dr. Jackie Fischer, MACCs Title IX Coordinator, at , ext or 6

7 Exam I Material B Introduction to Economics Building Models near Columbia Boone near Columbia Boone 0.75 miles 0 1 of miles 1 of 1 7

8 1 Cost-Benefit Analysis Expectations: 8

9 2 Markets 2.1 Demand Price Person 1 Person 2 Person 3 Market The Law of Demand: Graphing the market demand curve: 2.2 Elasticity and Demand Shifts 9

10 Increase: Decrease: 10

11 2.3 Supply The Law of Supply: Increase: Decrease: 11

12 2.4 Equilibrium 12

13 3 Economic Surplus & Price Controls 3.1 Individual Economic Surplus MB Price Surplus MC Price Surplus 3.2 Market Economic Surplus 13

14 3.3 Price Controls Price Floor: Price Ceiling: 14

15 4 Taxes Person 1 Person 2 Person 3 Person 4 PEMB PEMC Surplus Suppose there is a $3 per pack social harm from smoking cigarettes. Person 1 Person 2 Person 3 Person 4 PEMB PEMC Surplus Social Harm Surplus Suppose that we ban cigarettes. Person 1 Person 2 Person 3 Person 4 PEMB PEMC Surplus Social Harm Surplus Suppose we impose a $3 per pack tax on cigarettes. Person 1 Person 2 Person 3 Person 4 PEMB PEMC Surplus Social Harm Surplus 15

16 Before: Place a $2 per pack on buyers: Place a $2 per pack on sellers: 16

17 Exam 2 Material 5 Subsidies Before: $2.50/unit subsidy to the buyers: $2.50/unit subsidy to the sellers: 17

18 6 PPF & Trade 6.1 Production Possibilities Frontier A B C D E Agricultural Goods Manufactured Goods 18

19 Land is gained from a neighboring country: 25% of the population dies during a plague: The retirement age increases to 70: The government subsidizes ag. eduction: 19

20 6.2 Gains from Trade Wheat Corn United States Canada US Canada World Without Trade With Trade Wheat Corn Wheat Corn 20

21 7 Trade Restrictions 7.1 The Export Market The market for wheat: 21

22 7.2 The Import Market The market for corn: 22

23 8 Types of Firms; Accounting Profit & Economic Profit Sole Proprietorships Partnerships Corporations Principal-Agent Problem Stocks Bonds 23

24 8.1 Profit Number of loaves sold: 20,000 Number of bagels sold: 36,000 Number of scones sold: 18,000 Price for bread: $8 Price for bagel: $2 Price for scone: $1 Wages: $100,000 Supplies: $60,000 Purchase of a van: $20,000 Depreciation rate: 10% Utilities: $4,800 Money borrowed from the bank: $300,000 (5% interest) Taxes: $50,000 Old salary: $50,000 Store (owned by you; previously rented out): $40,000 Money from savings: $50,000 (3% interest) 24

25 Final Exam Material 9 Production & Cost 9.1 Production Labor (L) Output (TP) AP L MP L

26 9.2 Cost Suppose we pay workers $100 and our fixed capital costs $200. L Q Fixed Costs Variable Costs Total Costs AFC AVC ATC MC

27 10 Market Types & Perfect Competition Perfect Competition Monopolistic Competition Oligopoly Monopoly 27

28 10.1 Perfect Competition 28

29 11 Monopoly 29

30 12 Game Theory Figure 1: A game. Top Left Right Up a, a a, b Side Down b, a b, b Figure 2: Prisoner s Dilemma (Payoffs are in millions of dollars). Firm B High Price Low Price High Price 3, 3 1, 4 Firm A How Price 4, 1 2, 2 Figure 3: Prisoner s Dilemma (Payoffs are in years spent in prison). Prisoner B Silent Confess Silent -2, -2-10, -1 Prisoner A Confess -1, -10-5, -5 30

31 Figure 4: Battle of the Sexes (Payoffs are in millions of dollars). Firm B Technology A Technology B Technology A 7, 4 3, 3 Firm A Technology B 0, 0 4, 7 Figure 5: Rock, Paper, Scissors Player 2 Rock Paper Scissors Rock 0, 0-1, +1 +1, -1 Player 1 Paper +1, -1 0, 0-1, +1 Scissors -1, +1 +1, -1 0, 0 31

32 13 Utility Theory Apples Total Utility MU MU/$ Oranges Total Utility MU MU/$

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