Economics 251: Price and Allocation Theory Fall 2003 Professor William M. Gentry Office hours: Fernald 3 Wednesday 2:00-3:30 PM, 597-4257 Tuesday 10:00 am Noon, wgentry@williams.edu and by appointment Course objectives: This course covers the tools and concepts of intermediate microeconomic theory. Building on the microeconomic foundations learned in introductory classes, we will develop models to analyze the decisions of consumers, the behavior of firms, and the functioning of markets. These models form the core of neoclassical economic theory, and are the basis for economic analyses of market equilibrium, efficiency, and individual and social welfare. Thus understanding them is important for more advanced work in economics. An important objective of the course is that you learn to apply the theoretical principles to actual economic situations. Consequently, we will use the tools and concepts we develop to analyze a variety of issues of current economic and policy interest. These tools are also useful in personal and business decision making. Prerequisites: Econ 110 and Math 103 (or its equivalent) OR Econ 101, any 200-level economics course, and Math 103 (or its equivalent). Textbook: The required book for the course is Microeconomics (third edition) by Jeffrey M. Perloff. Reading assignments are listed on the schedule below, and should be completed before the class in which they will be discussed. There is no course packet, but I will occasionally hand out articles in class (or put them on the website) that illustrate the ideas discussed in the course. Course website: Announcements, problem sets, solutions, and other class materials will be posted on the course website at http://blackboard.williams.edu. Grading: Grades will be based on problem sets, two midterm exams, and a final exam (which will be cumulative). Your overall grade will be determined according to the following scheme: Participation 5% Problem sets 10% Midterm 1 25% Midterm 2 25% Final exam 35% 1
To reward improvement, if your final exam grade is higher than either of your midterm grades (relative to class average), the weight on your lowest midterm grade will be reduced to 15% and the weight on the final will be increased to 45%. 2
Policies regarding problem sets: Problem sets will be due on Fridays by 5 PM, except in weeks in which a midterm exam is scheduled (a schedule of due dates is given below). They should be turned in to your TA's box in Fernald. You are encouraged to work with other students on problem sets, however you must write up your answers on your own, and in your own words. It is a violation of the Honor Code to copy another student's problem set. Although the problem sets count for only 10% of your grade, completing and understanding them is crucial to your success on the exams. Late problem sets will not be accepted. Instead, only the best 7 problem set grades will be counted in determining your final grade. Thus, you can miss up to 2 problem sets for any reason without any penalty. Problem Set Schedule Problem set # Date distributed: Date due: 1 Monday, Sept. 8 Friday, Sept. 12 2 Wednesday, Sept. 10 Friday, Sept. 19 3 Wednesday, Sept. 17 Friday, Sept. 26 4 Wednesday, Oct. 1 Friday, Oct. 10 5 Wednesday, Oct. 15 Friday, Oct. 24 6 Wednesday, Oct. 22 Friday, Oct. 31 7 Wednesday, Oct. 29 Friday, Nov. 7 8 Monday, Nov. 10 Friday, Nov. 21 9 Monday, Nov. 24 Friday, Dec. 5 Attendance and class participation: With the exception of the optional review sessions held before each exam, you are expected to attend class and to participate in class. The participation portion of your grade will depend on attending class (on time) and contributing to class through comments and questions. Exam grading policies: I grade exams name blind, which I believe increases the impartiality of grading. It also eliminates the fear that I sometimes hear from students that asking dumb questions will hurt their grade because it affects my opinion of their written work. If you believe that I have made a mistake in grading your exam, then I will regrade the exam using the following process. To initiate an exam regrade, you write a memo outlining the issues of debate. I will consider the issues in your memo and regrade your entire exam. 3
Academic honesty: The Honor Code applies to all work submitted and exams taken in this class. You are encouraged to collaborate on the problem sets, however as noted above, the work you turn in should be written up independently. You may also collaborate in studying or preparing for the exams, but the written exam should be your work alone. Class schedule and important dates: There will be some flexibility in when we cover each topic, depending on speed and interest about specific issues. Class Date Topic Reading Introduction and review 1 Fri., 9/5 Introduction and review of supply & demand Ch. 1 & 2 2 Mon., 9/8 Applications of supply & demand The usefulness of elasticity Introduction to consumer preferences Consumer behavior 3 Weds., 9/10 Consumer choice: budget constraints and maximization Deriving demand functions 4 Ch. 3, Ch. 4.1 & 4.2 Ch. 4.3 & 4.4, app. 4A & 4B*, Ch. 5.1 & 5.2 4 Mon., 9/15 Applying consumer theory Ch. 5.3, app. 5A & 5 Weds., 9/17 More on consumer theory Introduce uncertainty 5B Ch. 5.5 (skim 5.4), Ch. 17, pp. 589-594 6 Mon., 9/22 Choice under uncertainty and insurance Ch. 17, pp. 595-611 (skip 17.4) Theory of the firm: production technology & cost structures 7 Weds., 9/24 Production: Technology Ch. 6, app. 6A & 6B 8 Mon., 9/29 Production: Cost functions Ch. 7, pp. 182-198, app. 7A & 7C 9 Weds., 10/1 MIDTERM #1 (covers material through 9/24) 10 Mon., 10/6 Costs and output decisions Ch. 7, pp. 198-226 Market structure and market interactions 11 Weds., 10/8 Perfect competition: Short run Ch. 8, pp. 227-250, app. 8B Mon., 10/13 Reading period no class 12 Weds., 10/15 Perfect competition: Long run Ch. 8, pp. 250-269
Class Date Topic Reading 13 Mon., 10/20 Competition and policy Competitive factor markets Ch. 9 (skip 9.6), Ch. 15.1, pp. 516-527 14 Weds., 10/22 General equilibrium and market efficiency Ch. 10 15 Mon., 10/27 Monopoly Ch. 11, app. 11A 16 Weds., 10/29 Monopolies & factor markets, monopsony, and vertical integration Ch. 15.2-15.4, pp. 527-550 17 Mon., 11/3 Pricing decisions with market power Ch. 12, app. 12B 18 Weds., 11/5 Monopolistic competition and oligopoly Ch. 13, pp. 423-427, pp. 461-464, pp. 426-449 Strategic behavior and externalities 19 Mon., 11/10 Game theory Ch. 13, pp. 450-460, 465-473 20 Weds., 11/12 MIDTERM #2 (covers material through monopolistic competition) 21 Mon., 11/17 Strategy Ch. 14 22 Weds., 11/19 Asymmetric information Ch. 19 23 Mon., 11/24 Contracting and moral hazard Ch. 20, app. 20A Weds., 11/26 Thanksgiving break No Class 24 Mon., 12/1 Externalities, property rights, and public Ch. 18, app. 18A goods 25 Weds., 12/3 Catch-up and review FINAL EXAM TO BE SCHEDULED * Appendices for the chapters are at the back of the book rather than the back of each chapter. 5