Economics 201

Introduction to Economic Analysis

Fall 2010

Jeffrey Parker, Reed College

 

Course Calendar and Syllabus

Note: Information listed for distant dates is a forecast, not a promise.
We may move more quickly or more slowly than expected and the calendar will be updated as necessary throughout the semester.


Go to this week's readings

 

Monday
Class
Wednesday
Class
Thursday
Activity
Friday
Class

August 30

Introduction to Econ 201

September 1

Essential concepts of economics

Due: Case questions

September 2

Discussion

The economics of oil under (and now in) the Gulf of Mexico

September 3

Supply, demand, and markets

Due: Case questions

September 6 

Labor Day: No class

September 8

Experiment: Double-oral auction

Due: Problem set #1

September 9

Quantitative Skills Review

Key mathematical concepts that are used extensively in economics, including algebra, linear models, and logarithms.

September 10

Applications of the competitive market model

Due: Case questions

September 13

Elasticity

Due: Case questions

September 15

Modeling household decisions

Due: Problem set #2 (Analysis of double-oral auction)

September 16

Discussion

Debriefing on the double-oral auction experiment

September 17

Price and income changes in the household decision model

 

September 20

Consumer choice under uncertainty

Due: Case questions

September 22

Modeling production technology

Due: Problem set #3

September 23

Lecture/demonstration

A simple introduction to econometrics

September 24

Costs and cost functions

Due: Case questions

September 27

Profit maximization in competition

Due: Case questions

September 29

Competitive equilibrium in the short and and the long run

Due: Problem set #4

September 30

 

October 1

Analysis of competitive markets

Due: Case questions

October 4

First midterm exam

October 6

Profit maximization in monopoly

October 7

Discussion

First midterm exam

October 8

Monopoly and monopolistic competition

Due: Case questions

October 11

Oligopoly and collusion

Due: Case questions

October 13

Game theory and oligopoly

Due: Problem set #5

October 14

Movie

Viewing of The Informant

October 15

Demand for factors of production

 

October 18
Fall break: No class
October 20
Fall break: No class
October 21
Fall break: No activity
October 22
Fall break: No class

October 25

Labor markets

Due: Case questions

October 27

Capital markets

Due: "Economic Naturalist" assignment

October 28

Experiment

Product quality and general equilibrium

October 29

General equilibrium

Due: Case questions

November 1

Economics of information

Due: Case questions

November 3

Externalities

Due: Problem set #6

November 4

Experiment

Voluntary contribution

November 5

Public goods

 

November 8

Income distribution

November 10

Second midterm exam

November 11

Discussion

Second midterm exam

November 12

Introduction to macroeconomics

Due: Case questions

November 15

Measurement in macroeconomics

Due: Case questions

November 17

Economic growth

Due: Case questions

November 18

Discussion

Selected economic naturalist submissions

November 19

Technological change

Due: Case questions

November 22

Financial system

Due: Case questions

November 24

Aggregate labor market and unemployment

Due: Problem set #7

November 25
Thanksgiving: No activity
November 26
Thanksgiving break: No class

November 29

Monetary system and inflation

Due: Case questions

 

December 1

Aggregate demand and supply

Due: Group research project reports

December 2

Presentations and discussion

Group research projects

December 3

Monetary and fiscal policy

Due: Case questions

December 6

Phillips curve

Due: Case questions

December 8

The Great Recession

Due: Problem set #8

December 9
Reading period: No activity
December 10
Reading period: No class
December 13
Final Exam, 8am-noon



 


1. Introduction to Economics

Monday, August 30: Introduction to Econ 201

Syllabus and course expectations. What economics is and what questions it attempts to answer.

No required reading or assignments

Back to top of syllabus

Wednesday, September 1: Essential concepts of economics

Basic concepts of economics: decision-making, scarcity, opportunity cost.

Required reading

  • Pindyck, Robert S., and Daniel L. Rubinfeld, Microeconomics, 6th edition, Englewood Cliffs, N.J., 2004, (hereafter "Pindyck and Rubinfeld"), Chapter 1.
  • Stiglitz, Joseph E., Principles of Microeconomics, 2nd edition, New York: W.W. Norton, 1997, (hereafter "Stiglitz"), Chapters 1 through 3.
  • Note: There are newer editions of both Stiglitz and the Samuelson/Nordhaus text below. Basic microeconomic theory changes slowly, so even though the examples are a bit out of date, the old editions that the library owns should work well.

For more background

  • Samuelson, Paul A., and William D. Nordhaus, Economics, 13th ed., New York: McGraw-Hill, 1989 (hereafter "Samuelson"), Chapters 1 through 3.

Assigned work

  • Case of the day: Airline Safety Choices. This case involves three short readings and a brief research activity.
Back to top of syllabus

Thursday, September 2: Discussion: Economics of Oil under (and now in) the Gulf of Mexico

Economics studies the social outcomes of individual decisions. The Gulf oil spill resulted from the interactions of numerous decisions made by individuals, firms, and policymakers. In this wide-ranging discussion we will attempt to identify how important decisions were made, how different incentives could have led to a different outcome, and how policies could have affected incentives.

No required reading or assigned work

Back to top of syllabus

Friday, September 3: Supply and demand analysis

Introducing supply and demand curves as tools to model the behavior of markets. Determinants of demand and supply. Walrasian (market-clearing) equilibrium. Comparative static analysis of shifts in curves.

Required reading

  • Pindyck & Rubinfeld, Chapter 2, pages 19-32.

For more background

  • Stiglitz, Chapter 4.
  • Samuelson, Chapter 4.

Assigned work

Back to top of syllabus

Monday, September 6: Labor Day (no class)

Wednesday, September 8: Double-oral auction experiment

An experiment to illustrate the interaction of supply and demand in a simple market setting.

No required reading


Assigned work

  • Problem set #1 is due today.
  • Problem set #2 is an experiment report on the double-oral auction experiment. It is due on Wednesday, September 15. The data from the experiment will be posted by Thursday morning. Students will work in assigned pairs to prepare the required experiment report.
Back to top of syllabus

Thursday, September 9, Activity: Quantitative Skills Review

Review of basic math skills that are essential to success in Econ 201. You should attend if you are concerned about your math preparation.

No required reading or work, but come with questions about specific math methods

Friday, September 10: Applications of supply-demand analysis

Using the supply-demand model to analyze gains from exchange and the effects of price controls and taxes.

Required reading

  • Pindyck & Rubinfeld, Section 4.4.

Assigned work

Back to top of syllabus

Monday, September 13: Elasticity

Concept and measurement of demand and supply elasticity. Determinants of elasticity in short run and long run. Effects of elastic and inelastic supply and demand curves.

Required reading

  • Pindyck and Rubinfeld, Chapter 2, pp. 32-57.

Assigned work

Back to top of syllabus


2. Household Behavior and Product Demand


Wednesday, September 15: Modeling individual decisions

Assumptions of rational consumer behavior. Representing preferences by utility functions and indifference maps. Budget constraints and optimal consumer behavior.

Required reading

  • Pindyck and Rubinfeld, Chapter 3.

Assigned work

Back to top of syllabus

Thursday, September 16, Activity: Discussion of double-oral auction

Presentation and discussion of the results of the double-oral auction.

No required reading or work

Back to top of syllabus

Friday, September 17: Effects of income and price changes on consumers

How income changes and price changes affect the consumption of goods. Decomposing the effects of a price change into the income and substitution effects.

Required reading

  • Pindyck and Rubinfeld, Chapter 4, pp. 101-121.

For more background

  • Stiglitz, Chapter 8, pp. 197-198.
  • Samuelson, Chapter 19.

Assigned work

  •  Problem set #3 is due on Wednesday, September 22. After today's class, we will have covered all of the topics needed to do this problem set.

Back to top of syllabus

Monday, September 20: Consumer Choice under Uncertainty

Consumer choice and the individual demand curve. Aggregation of individual demand to get market demand. Choice under uncertainty.

Required reading

  • Pindyck and Rubinfeld, Chapter 4, pp. 122-140 and Chapter 5.

For more background

  • Stiglitz, Chapter 8, pp. 185-186 and 196-197.
  • Samuelson, Chapter 19.

Assigned work

Back to top of syllabus


3. Firms, Production, and the Supply of Products

Wednesday, September 22: Modeling Production Technology

The firm as producer of goods and services. Using the production function to represent production technology. Marginal product and diminishing returns. Returns to scale.

Required reading

  • Pindyck and Rubinfeld, Chapter 6.

For more background

  • Stiglitz, Chapter 11, pp. 250-255.
  • Samuelson, Chapter 21, pp. 499-511.

Assigned work

Back to top of syllabus

Thursday, September 23, Activity: A Brief Introduction to Econometrics

A basic, non-mathematical introduction to the use of statistical and econometric methods to estimate economic relationships and test economic hypotheses.

Required reading 

  • Pindyck and Rubinfeld, Chapter 4, pp. 136-149 and Appendix: "The Basics of Regression"

Friday, September 24: Costs and Cost Functions

Various cost concepts: total cost, variable cost, average cost, marginal cost. Relationship of cost to output and inputs in short run and long run. Cost functions and production functions.

Required reading

  • Pindyck and Rubinfeld, Chapter 7.

For more background

  • Stiglitz, Chapter 11, pp. 255-272.
  • Samuelson, Chapter 21, pp. 498-511 and Chapter 22, pp. 512-539.

Assigned work

  • Case of the Day: Costs and Competition in Dairy Farming. A detailed quantitative analysis of some data on dairy farms in the 1960s.
  • Problem Set #4 consists of two days worth of accumulated case questions on the dairy farm case. It is due on Wednesday, September 29.
Back to top of syllabus

Monday, September 27: Profit Maximization in Perfect Competition

Economic and accounting profits. Profit maximization as an objective. Conditions necessary for perfect competition. Demand, marginal revenue, and cost curves for a competitive firm. Shut-down and profit-maximization rules in the short-run.

Required reading

  • Pindyck and Rubinfeld, Chapter 8, pp. 261-281.

For more background

  • Stiglitz, Chapter 12, pp. 281-299.
  • Samuelson, Chapter 23, pp. 539-557.

Assigned work

Back to top of syllabus

Wednesday, September 29: Competitive Equilibrium in the Short Run and the Long Run

Entry, exit, and scale of production in long-run equilibrium.

Required reading

  • Pindyck and Rubinfeld, Chapter 8, pp. 281-294.

For more background

  • Stiglitz, Chapter 13.
  • Samuelson, Chapter 23.

Assigned work

Back to top of syllabus

Thursday, September 30, Activity: Mid-term Review

A review session for the mid-term will be held from 7:10 until you run out of questions.

Friday, October 1: Analysis of the Competitive Model

Efficiency characteristics of competitive markets. Effects of taxes and subsidies. Price ceilings and price floors.

Required reading

  • Pindyck and Rubinfeld, Chapter 9.

For more background

  • Stiglitz, Chapter 13.
  • Samuelson, Chapter 18, especially pp. 432-443.

Assigned work

Back to top of syllabus

Monday, October 4: Mid-Term Exam #1

Exam will be given in class, closed-book and closed-note. The instructor will be away at a conference, so the exam will be administered by another person.

Wednesday, October 6: Profit Maximization in Monopoly

Why monopolies arise. Demand and marginal revenue for a monopoly. Profit maximization.

Required reading

  • Pindyck and Rubinfeld, Chapter 10.

For more background

  • Stiglitz, Chapter 14.
  • Samuelson, Chapter 24, especially pp. 566-575.

Assigned work

  • Nothing today!

Thursday, October 7, Activity: Discussion of First Mid-Term Exam

Discussion of first mid-term exam.

No reading or work due

Friday, October 8: Applications of Monopoly and Monopolistic Competition

Efficiency costs of monopoly. Antitrust laws. Price discrimination. Entry of producers of substitutes under monopolistic competition.

Required reading

  • Pindyck and Rubinfeld, Chapter 11 and Chapter 12, pp. 435-441.

For more background

  • Stiglitz, Chapter 14.
  • Samuelson, Chapter 24, especially pp. 582-593.

Assigned work

  • Case of the Day: The New York City Ice Trust. A short reserve reading and a few questions.
  • Problem Set #5 is due on Wednesday, October 13. After today's class, we will have completed all the material needed to do this problem set.

Monday, October 11: Oligopoly and Collusion

Characteristics of oligopoly. Collusion and the prisoners' dilemma. Competition policies.

Required reading

  • Pindyck and Rubinfeld, Chapter 12, pp. 441-467.

For more background

  • Stiglitz, Chapters 15 and 16.
  • Samuelson, Chapter 25, especially pp. 605-617, plus appendix to Ch. 25, pp. 629-634.

Assigned work

Wednesday, October 13: Game Theory and Oligopolistic Interaction

Basic concepts of game theory applied to the interaction of firms in an oligopoly.

Required reading

  • Pindyck and Rubinfeld, Chapter 13.

For more background

  • Stiglitz, Chapter 15.
  • Samuelson, Chapter 25, pp. 605-629.

Assigned work

Thursday, October 14, Activity: Viewing of The Informant

Group viewing of 2009 movie about the informant in the lysine case we studied in Monday's case study.

No reading or work due

 


4. Markets for Factors of Production

Friday, October 15: Demand for Factors of Production

Marginal product, marginal revenue product, and the demand for factors. Factor-market equilibrium under competition and with market power.

Required reading

  • Pindyck and Rubinfeld, Chapter 14.

For more background

  • Stiglitz, Appendix to Chapter 11 and Chapter 12, pp. 209-304.
  • Samuelson, Chapter 27, pp. 656-673.

Assigned work

  • Economic naturalist assignment is due on Wednesday, October 27. This is your opportunity to propose a "case study" from your life experience or reading.

Monday, October 25: Labor Markets

Supply of labor. Effects of unions. Equilibrium wages and the characteristics of workers and jobs.

Required reading

  • Stiglitz, Chapters 9 and 19.

Assigned work

Wednesday, October 27: Capital Markets

Discounting future receipts and payments. Cost of capital vs. rate of return. Markets for borrowing and lending and the equilibrium interest rate. Risk and interest rates. Institutions of the credit market: venture capitalists, banks, bonds, and stocks.

Required reading

  • Pindyck and Rubinfeld, Chapter 15.

For more background

  • Stiglitz, Chapter 6.
  • Samuelson, Chapter 30, pp. 717-731.

Assigned work

Thursday, October 28, Activity: Product Quality General Equilibrium Experiment

An experiment testing whether the market can induce production of the most efficient quality grade of a material under different information regimes.

No reading or work due

 


5. Markets, Market Failure, and Efficiency

Friday, October 29: General Equilibrium

Efficiency implications of simultaneous general equilibrium in competitive product and factor markets.

Required reading

  • Pindyck and Rubinfeld, Chapter 16.

For more background

  • Stiglitz, Chapter 13.
  • Samuelson, Chapter 31, pp. 741-753.

Assigned work

  • Case of the Day: Tracing the Effects of the Oil Embargo. A short reading with some tables and a few questions.
  • Problem Set #6 is due in class on Wednesday, November 3. After today's class, we will have completed all the material covered on this problem set.

Monday, November 1: Economics of Information

Market failures that arise when information access is asymmetric across the two parties to a transaction. Problems of moral hazard and adverse selection.

Required reading

  • Pindyck and Rubinfeld, Chapter 17.

For more background

  • Insurance
  • Stiglitz, Chapter 18.
  • Samuelson, Chapter 32, pp. 770-777.

Assigned work

  • Case of the Day: Why Is Health Care So Expensive? A short introductory page followed by about 50 pages of reading from Republican and Democratic health-care reform proposals, then a few questions.
  • Problem Set #6 is due on Wednesday, November 3.

Wednesday, November 3: Externalities

Externalities and efficiency. Property rights and the Coase Theorem.

Required reading

  • Pindyck and Rubinfeld, Chapter 18, pp. 641-665.

For more background

  • Stiglitz, Chapter 21.

Assigned work

  • Problem Set #6 is due today in class.

Thursday, November 4, Activity: Voluntary-Contribution Experiment

An experiment testing people's willingness to contribute to public projects.

This is the week of Reed's Parents' Weekend. Parents are explicitly invited to attend and participate in this experiment, which will tie into Friday's class. (They are also invited to attend Friday's class.)

No reading or work due

Friday, November 5: Public Goods

Definition and nature of public goods. Efficiency in the provision of public goods. Other economic roles of government.

Required reading

  • Pindyck and Rubinfeld, Chapter 18, pp. 665-671.

For more background

  • Stiglitz, Chapter 7.

Assigned work

  • None!

Monday, November 8: Income Distribution and Poverty

The income distribution implications of general equilibrium. Definitions of equity and equality. Evidence on the U.S. distributions of income, earnings, and wealth. Government policies to transfer income.

Required reading

  • Stiglitz, Chapter 22.
  • Okun, Arthur M., Equality and Efficiency: The Big Tradeoff. (A small, but classic book. I want you to read the entire book, so plan ahead for this one.)
  • Optional: Heathcote, Jonathan, Fabrizio Perri, and Giovanni L. Violante, "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967–2006," Federal Reserve Bank of Minneapolis Staff Report 436, October 2009. (We'll look at some of the information from this paper in class.)

Assigned work

  • No assigned work due to the length of the readings.

Wednesday, November 10: Second Mid-Term Exam

In-class exam will be closed-book, closed-note.

Thursday, November 11, Activity: Review of Mid-Term Exam

Discussion of Wednesday's mid-term

No reading or work due

 

 



 

6. Macroeconomics

Friday, November 12: Introduction to Macroeconomics

Relationship of macroeconomics and microeconomics. Objectives of macroeconomic analysis. Major schools of macroeconomic thought.

Required reading

Assigned work

  • Case of the Day: The Great Depression. A short reading about the most dramatic episode in U.S. economic history, and the one that led to the creation of macroeconomics as a discipline.

Monday, November 15: Measurement in Macroeconomics

Gross domestic product as a measure of economic activity. Price indexes and other macroeconomic variables. Implications of measurement problems.

Required reading

  • Mankiw, N. Gregory, Principles of Macroeconomics, 5th ed., Mason, Ohio: South-Western/Cengage Learning, 2009, Chapters 10 and 11 (hereafter, Mankiw).

Recommended optional reading

Assigned work

Wednesday, November 17: Economic Growth

Basic facts of long-run economic growth.

Required reading

  • Mankiw, Chapter 12.

Assigned work

  • Case of the Day: Information Technology and Productivity. A short reading about the revolution in electronic data processing and communication on measured productivity growth, with some questions.
  • Topics for Group research projects will be made available today. These are optional (but enjoyable) group assignments. Students can form groups to explore one of the questions I suggest, formulate and research a question of their own, or prepare a creative skit demonstrating some aspect of economics we have studied. Brief reports on your projects are due on Wednesday, December 1, and you will be asked to present your project results (or skit) in the activity session on Thursday, December 2.

Thursday, November 18, Activity: Discussion of Economic Naturalist Assignments

A discussion of some of the interesting economic naturalist topics proposed by students in the earlier assignment.

Required reading

Friday, November 19: Technological Change

Macroeconomic implications of technological progress. Sources of new technology: invention and innovation. The role of and microeconomic incentives for research and development.

Required reading

  • Stiglitz, Chapter 17.

Assigned work

  • Case of the Day: Appropriability and Incentives for Innovation. A discussion of the microeconomics of technological innovation. How does society provide incentives for innovation through protection of intellectual property and other means.
  • Problem set #7 is due in class on Wednesday, November 24. After today's class, we will have covered everything necessary for this problem set.
  • Group research project reports are due Wednesday, December 1.

Monday, November 22: Financial System

How financial markets translate saving by households into investment funds for firms. How financial asset markets (are supposed to) work.

Required reading

  • Mankiw, Chapters 13 and 14.

Assigned work

Wednesday, November 24: Aggregate Labor Market and Unemployment

Aggregate demand for and supply of labor. Kinds of unemployment. Natural vs. cyclical unemployment.

Required reading

  • Mankiw, Chapter 15.

Assigned work

Monday, November 29: Monetary System and Inflation

What money is. The organization of the monetary system and the roles of individuals, banks, and the Federal Reserve System. How the money supply is determined. Money and inflation.

Required reading

  • Mankiw, Chapters 16 and 17.

Assigned work

Wednesday, December 1: Aggregate Demand and Supply

An introduction to the workhorse framework that macroeconomists often use to describe short-run movements in the economy.

Required reading

  • Mankiw, Chapter 20.

Assigned work

  • Group research project reports are due today in class. Presentations occur tomorrow evening in the activity session.

Thursday, December 2: Presentation of Group Research Projects

Student groups will present the results of their research projects and/or perform their skits.

No reading or work due, but copies of the research reports will be available to preview

Friday, December 3: Monetary and Fiscal Policy

Effects of government policies on aggregate demand. Use of monetary and fiscal policy to stabilize the economy.

Required reading

  • Mankiw, Chapters 21 and 23.

Assigned work

  • Case of the Day: Monetary and Fiscal Policies in 2008-10. An analysis of the various policies enacted by the federal government and the Federal Reserve to cope with the Great Recession of 2008, including TARP, TALF, and the fiscal stimulus package.
  • Problem Set #8 is due on Wednesday, December 8. After today's class, we will have covered all of the relevant material.

Monday, December 6: Unemployment/Inflation Tradeoffs

The traditional Phillips curve and its modern successors. Appropriate goals for monetary and fiscal policy.

Required reading

  • Mankiw, Chapter 22.

Assigned work

  • Case of the Day: U.S. Disinflation in 1979-82. How the Federal Reserve reduced inflation from near 10% levels starting in 1979, and the other effects of these policies on the macroeconomy.
  • Problem Set #8 is due on Wednesday, December 8.

Wednesday, December 8: The Great Recession

What happened to the financial system in 2008 and why did it have such a great effect on the macroeconomy in the U.S. and elsewhere? What have been the effects have the policymakers' responses to the crisis?

Recommended reading

Assigned work

Final Exam

The final exam is scheduled for 8am to noon on Monday, December 13.

Economic Naturalist assignment is due on Wednesday, October 27.