Economics for Business Syllabus Luc Hens Vrije Universiteit Brussel Fall 2017 Contact Instructor: Luc Hens email: luc.hens@vub.ac.be. If you mail me concerning this course, write Economics for Business Yourfirstname YOURLASTNAME in the subject line. Web site: http://homepages.vub.ac.be/~lmahens/. Contains course syllabi, a research guide, links to other economics sites, previous exams, and more. Office hours: Fridays 14:00 16:00, Room C217. During office hours I will be pleased to speak with students without an appointment. If you would like to see me at another time, please arrange for an appointment before or after class or by e-mail. Time and place of class: Classes are 6:00 10:00 pm in room D003, with some exceptions. Here s the schedule: week 2 Thursday 28 September 2017 6:00 10:00 pm room D003 week 3 Thursday 5 October 2017 6:00 10:00 pm room D003 week 4 Thursday 12 October 2017 6:00 10:00 pm room D003 week 5 Monday 16 October 2017 6:00 10:00 pm room D003 week 6 Friday 27 October 2017 6:00 10:00 pm room D003 week 7 Tuesday 31 October 2017 6:00 10:00 pm room QD week 8 Thursday 9 November 2017 6:00 10:00 pm room D003 Course description Economics for Business (3 ECTS credits) introduces students pursuing a graduate degree in business to the principles of economics. Topics from microeconomics include: supply and demand, elasticity, applications of supply and demand, the costs of production, firms in competitive markets, monopoly. The course concludes with a short survey of the macroeconomic environment. Course objectives This course aims to give students in business an understanding of how markets work, what makes markets more or less competitive, and how the external environment (the macroeconomy) influences a firm s decisions. 1
Course prerequisites This course requires that students understand graphs of two variables in the x y coordinate system. Read the Appendix to Chapter 2 (pp. 30 40) from Mankiw and Taylor (2014) (the previous edition of the textbook; I made this excerpt available on Pointcarré). Review this material on your own. Also read the handout on percentages posted on the course home page. Skill development In Economics for Business, I try to develop the first four skills outlined in Hansen (2001, pp. 232 233): Text 1. Access existing knowledge: Retrieve information on particular topics and issues in economics. Locate published research in economics and related fields. Track down economic data and data sources. Find information about the generation, construction, and meaning of economic data. 2. Display command of existing knowledge: Explain key economic concepts and describe how these concepts can be used. Write a précis of a published journal article. Summarize in a two-minute monologue or in a 500-word written statement what is known about the current condition of the economy and its outlook. Summarize the principal ideas of an eminent economist. Elaborate a recent controversy in the economics literature. State the dimensions of a current economic policy issue. 3. Interpret existing knowledge: Explain and evaluate what economic concepts and principles are used in economic analyses published in daily newspapers and weekly news magazines. Describe how these concepts aid in understanding these analyses. Do the same for nontechnical analyses written by economists for general purpose publications (... ). 4. Interpret and manipulate economic data: Explain how to understand and interpret numerical data found in published tables (... ). Be able to identify patterns and trends in published data (... ). Construct tables from already available data to illustrate an economic issue. Describe the relationship among three different variables (e.g., unemployment, prices, and GDP). Explain how to perform and interpret a regression analysis that uses economic data. The required textbook is Mankiw and Taylor (2017) (ISBN 978-1473725331), available in the Standaard Student Shop (on campus, B building) and on Amazon (amazon.de, about 70 euro). If you use an older edition, it is up to you to check the correspondence between the old and new editions. You can find numerous solved problems in Salvatore (2011) and Salvatore and Diulio (2012); both are available in the library. 2
Some further material may be distributed during the course. Regularly check the news section from the course website and verify what happened during classes you missed. I expect you to follow the economic news by reading the daily newspaper The Financial Times (limited access on ft.com) or the weekly Economist (limited access on economist.com). The latest issues of both are available on paper in the library; the last 30 issues of the Financial Times are in the current periodicals section of the library (call number 07 E FINT). If you prefer to get your own subscription, note that 4uCampus (www.4ucampus.be) offers considerable student discounts. I regularly post news updates on the course homepage. Keep a file with newspaper clippings related to economics subjects; try to organize them according to the textbook chapter they relate to. Preparation for class, attendance Carefully read the materials indicated in the course schedule before coming to class. Economics is a sequential subject: new topics build on concepts introduced before, so it is crucial to keep up with the material as we go along and to regularly review concepts. In the European Credit Transfer System (ECTS) the total workload for a 3-credit course is 75 90 hours. Bring the following things to class meetings: an A4 notebook with squared paper, a ruler with a centimeter scale, a mechanical pencil, an eraser, some colored pencils. Notebooks of the Atoma brand allow you to easily add, remove, and reorganize pages. You don t have to bring the textbook to class. Attending classes adds value: concepts are reviewed, theory is applied to current events, and you can ask questions. I strongly encourage you to work additional problems. In the course schedule below, I list end-of-chapter problems from Mankiw and Taylor (2017) that apply what you learned in class. Problems of this kind may be part of the examination. I don t distribute the solutions. The reason is that freshman students in another introductory economics class solve these problems in tutorial sessions. If I distribute the solutions, soon students will be sitting in the tutorials with the solutions in front of them and they won t learn to think for themselves. You can find hundreds of solved numerical problems similar to the ones in Mankiw and Taylor (2017) in Salvatore and Diulio (2012). The older edition is fine, too. You can buy it used for a couple of euros at amazon.co.uk. Teaching and assessment methods Economics for Business uses a mix of interactive classroom lectures and in-class problem sets. Students are assessed on basis of a written exam. The exam consists of two parts. The first, counting for about one fourth of the total grade, asks you to explain briefly a number of basic concepts. This is intended to find out whether you are able to speak the economist s language accurately. A list of terms to be studied is included in Appendix A. The glossary is in the back of Mankiw and Taylor (2017, pp. 784 793). The second part (usually three questions) asks you to apply what you have learned by working case studies or by commenting at length on statements from the business and financial press, 3
using the economist s analytical toolbox. Bring the following things to the exam: your student picture ID, a mechanical pencil, an eraser, a blue pen, some colored pencils or pens (not red), and a ruler with a centimeter scale. Put everything in a transparent resealable (Ziploc) plastic bag. No phones or other electronic devices, no calculator, no pencil cases, no paper, no food, no paper tissues (use a handkerchief). A 50 cl water bottle is allowed if you remove the label. Don t mail or call me to inquire about your grade I don t communicate grades by mail or by telephone. Course schedule Consult the course home page regularly (at least once a week) for announcements and possible schedule changes. The material listed should be read carefully before the class meeting. Study the key concepts listed at the end of each chapter. There is a list of concepts to be known for the final exam in Appendix A. Week 2 (Thursday 28 September 2017) Read carefully (from the previous edition of the textbook): How To Read This Book (Mankiw and Taylor, 2014, Chapter 1, p. 14) and Appendix: Graphing and the Tools of Economics: A Brief Review (Mankiw and Taylor, 2014, Chapter 2, pp. 30 40). Both are made available on Pointcarré. The Market Forces of Supply and Demand (Mankiw and Taylor, 2017, chapter 3). Work problems 1 through 9; skip problem 10 (this problem requires algebra beyond the scope of this course). Elasticity and its applications (Mankiw and Taylor, 2017, chapter 4). Skip: Using the Point Elasticity of Demand Method (p. 59), Other demand elasticities (pp. 64 65), Point Elasticity of Supply Method, (p. 68). Work problems 3, 4 (highly recommended; use the midpoint method and make a diagram on scale), 5 (only part (a); highly recommended; use the midpoint method and make a diagram on scale), 6 10; skip problems 1 and 2 (they are confusing). Week 3 (Thursday 5 October 2017) Consumers, Producers, and the Efficiency of Markets (Mankiw and Taylor, 2017, Chapter 7). Work problems 4, 5, 6, 9 (problems of this kind may be part of the examination). Supply, Demand, and Government Policies (Mankiw and Taylor, 2017, Chapter 8). Skip: An Ad Valorem Tax on Sellers, The Algebra of a Specific Tax, Elasticity and Tax Incidence (pp. 170 173). Work problems 3, 4, and 7. The Tax System (Mankiw and Taylor, 2017, Chapter 9). Only pp. 179 183; skip the rest of the chapter. Work problem 1. Week 4 (Thursday 12 October 2017) Externalities and Market Failure (Mankiw and Taylor, 2017, Chapter 11). Skip: Private Solutions to Externalities (pp. 217 220), Public/Private Poli- 4
cies Towards Externalities (pp. 223 226) and Government Failure (pp. 227 232). Work problems 1, 2 and 6. Read (on Pigouvian taxes): Externalities: The Lives of Others. The Economist, 19 August 2017, pp. 52 53 (posted on Pointcarré). Week 5 (Monday 16 October 2017) Firms in Competitive Markets (Mankiw and Taylor, 2017, Chapter 6). Print the handout and bring it to class (to facilitate taking notes): MankiwTaylor_2017_Chapter_6_handout.pdf. Skip: Costs in the Short Run and in the Long Run (pp. 122 123), Returns to Scale (pp. 124 126), The Firm s Short-Run Decision to Shut Down through The Firm s Long-Run Decision to Exit or Enter a Market (pp. 132 135), and The Long Run: Market Supply and Entry and Exit through Why the Long- Run Supply Curve Might Slope Upwards (pp. 137 140). Work problems 1, 3 and 8. Read: Tom Fahey. (2016, January 14). Is 2 a fair price for a cup of hot water and lemon? The Guardian (online: link on course web page). To the costs listed in the article, you should add the opportunity cost of the owner s time and savings to get the economic cost (including implicit costs). Week 6 (Friday 27 October 2017) Firms in Competitive Markets (continued). Week 7 (Tuesday 31 October 2017) Monopoly (Mankiw and Taylor, 2017, Chapter 14). Skip Price Discrimination (pp. 275 278). Work problems 1 and 5. Week 8 (Thursday 9 November 2017) Monopoly (continued). Exam period (15 January 05 February 2018) Written exam. Time and place to be announced. The exam covers all the material listed in the schedule above (even if we didn t discuss it in the class meetings). Bring the following things to the exam: your student ID, a mechanical pencil, an eraser, a blue pen, some colored pencils or pens (not red), and a ruler with a centimeter scale. Put everything in a transparent resealable (Ziploc) plastic bag. No phones or other electronic devices, no calculator, no pencil cases, no paper, no food, no paper tissues (use a handkerchief). A 50 cl water bottle is allowed if you remove the label. A Concepts These are the key concepts for which you have to study the definitions for question 1 of the final exam. The glossary is in Mankiw and Taylor (2017, pp. 805 813). 5
Chapter 3: competitive market, substitutes, complements Chapter 4: price elasticity of demand, price elasticity of supply, total expenditures, total revenue. Chapter 6: marginal product, diminishing marginal product, fixed costs, variable costs, marginal cost, marginal revenue. Chapter 7: consumer surplus, producer surplus, total surplus, efficiency Chapter 8: Chapter 9: deadweight loss Chapter 11: externality, internalizing an externality, Pigovian tax. Chapter 14: monopoly, natural monopoly Chapter 20: gross domestic product (GDP) B Errors in Mankiw and Taylor (2017) To convert a decimal fraction to a percentage multiply by 100% (not by 100). On p. 59 the % signs are missing: And On p. 67, too: Percentage change in quantity demanded = Q d Q d 100% Percentage change in price = P P 100% Price elasticity of supply = 15% 10% Price elasticity of supply = 1.5 On p. 68 units and % signs are missing: Percentage change in price = (( 3.15/litre 2.85/litre)/ 3.00/litre) 100% = 10% Percentage change in quantity supplied References = ((110 000 litres 90 000 litres)/100 000 litres) 100% = 20% Hansen, W. L. (2001). Expected proficiencies for undergraduate economics majors. Journal of Economic Education, 32(3):231 242. Mankiw, N. G. and Taylor, M. P. (2014). Economics. Cengage Learning, Andover, 3 rd edition. Mankiw, N. G. and Taylor, M. P. (2017). Economics. Cengage Learning, Andover, 4 th edition. Salvatore, D. (2011). Schaum s Outline of Microeconomics. Schaum s Outline Series. McGraw-Hill, New York, 4 th edition. Salvatore, D. and Diulio, E. (2012). Schaum s Outline of Principles of Economics. Schaum s Outline Series. McGraw-Hill, New York, 2 nd edition. 6