Introduction to Economic Analysis
Fall 2013
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.
| Monday Class | Wednesday Class | Friday Class |
|---|---|---|
|
September 2 Labor Day: No Class |
Introduction to Econ 201 |
Basic concepts of economics Due: Case questions |
|
Supply and demand Due: Case questions |
Experiment: Double-oral auction Due: Problem Set #1 |
Elasticity Due: Case questions |
|
Applications of the competitive market model Due: Case questions |
Discussion of double-oral auction experiment Due: Problem Set #2 (Analysis of double-oral auction) |
Modeling household decisions Due: Case questions |
|
Price and income changes in the household decision model Due: Case questions |
Consumer choice and demand Due: Problem Set #3 |
Modeling production Due: Case questions (not handed in) |
|
Costs and cost functions Due: Case questions (not handed in) |
Profit maximization in competition Due: Problem Set #4 |
Analysis of competitive markets Due: Case questions |
|
Profit-maximization and factor inputs Due: Case questions |
Labor markets Due: Problem Set #5 |
Profit maximization and monopoly Due: Case questions |
|
Applications of monopoly and monopolistic competition Due: Case questions |
Catchup day or review Nothing due today |
Mid-term exam
|
| October 21 Fall break: No class |
October 23 Fall break: No class |
October 25 Fall break: No class |
|
Imperfect competition and oligopoly Due: Case questions |
Oligopoly and game theory Due: "Economic Naturalist" assignment |
Capital markets Due: Case questions |
|
General equilibrium Due: Case questions |
Economics of Information Due: Problem Set #6 |
Externalities Due: Case questions |
|
Public goods Due: Case questions |
Income distribution No assignment due to length of readings |
Innovation and Technology Due: Case questions |
|
Introduction to macroeconomics Due: Case questions |
Measurement in macroeconomics Due: Case questions |
Economic growth Due: Case questions |
|
Financial system Due: Case questions |
Aggregate labor market and unemployment Due: Problem Set #7 |
November 29 Thanksgiving break: No class |
|
Monetary system and inflation Due: Case questions |
Aggregate demand and supply Due: Problem Set #8 |
Monetary and fiscal policy Due: Case questions |
|
Phillips curve Due: Case questions |
The Great Recession Due: Group Research Project Reports |
December 13 Reading period: No class |
Final Exam will be held on December 18, 8am-noon. |
1. Introduction to Economics
Wednesday, September 4: Introduction to Econ 201
Syllabus and course expectations. What economics is and what questions it attempts to answer.
No required reading or assignments
Friday, September 6: Essential concepts of economics
Basic concepts of economics: decision-making, scarcity, opportunity cost.
Required reading
- Dasgupta, Partha, Economics: A Very Short Introduction, Oxford University Press, 2007.
- Goolsbee, Austan, Steven Levitt, and Chad Syverson, Microeconomics, Worth Publishers, 2013, Chapter 1.
For more background
- Mankiw, N. Gregory, Principles of Economics, 6th edition, Southwestern, 2012, Chapters 1, 2, and 3. (Hereafter, this text is referred to as "Mankiw Economics." This book combines micro and macroeconomics. The macro section is also published separately as Principles of Macroeconomics. This is the primary text we shall use in the final third of the course. Copies of both the combined text and the macro text are available on reserve.)
Assigned work
- Case of the day: Trust in Everyday Transactions. A few short questions based on ideas in the Dasgupta reading.
- Problem Set #1 is due on Wednesday, September 11.
Monday, September 9: 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
- Goolsbee, Levitt, and Syverson, Sections 2.1 - 2.4.
For more background
- Mankiw Economics, Chapters 4 and 6.
Assigned work
- Case of the day: Markets, Scalpers, and Queues: The Economics of Event Tickets. This case involves reading from a selection of short newspaper articles, gathering cost information from an online resale site, and answering a few questions.
- Problem Set #1 is due on Wednesday, September 11.
Wednesday, September 11: 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 18. The data from the experiment will be posted by Thursday morning. Students will work in assigned pairs to prepare the required experiment report.
Friday, 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
- Goolsbee, Levitt, and Syverson, Sections 2.5 - 2.6.
For more background
- Mankiw Economics, Chapter 5.
Assigned work
- Case of the Day: Elasticities of Demand for Higher Education. How sensitive is the demand for a Reed education to tuition price? What is the relevant concept of price? How can we estimate the income elasticity of demand?
- Problem Set #2 is due on Wednesday, September 18.
Monday, September 16: Application of the Competitive Model
Using the supply-demand model to analyze gains from exchange and the effects of price controls and taxes.
Required reading
- Goolsbee, Levitt, and Syverson, Chapter 3.
For more background
- Mankiw Economics, Chapters 7 and 8.
Assigned work
- Case of the Day: Counterintuitive Price Behavior of Seasonal Goods. Why are school supplies on sale in August? You will read about and discuss a paper that explores the tendency for sellers to offer discounts at times when demand is high.
- Problem Set #2 is due on Wednesday, September 18.
Wednesday, September 18: Discussion of Double-Oral Auction Experiment
Discussion and analysis of experiment performed last week.
Required reading
- None.
Assigned work
- Problem Set #2 is due today at the beginning of class.
2. Household Behavior and Product Demand
Friday, September 20: Modeling consumer behavior
Basic approach to consumer decision modeling. Indifference maps as representation of consumer preferences. Budget constraints as representation of consumer opportunity sets. Utility maximization.
Required reading
- Goolsbee, Levitt, and Syverson, Sections 4.1 - 4.2.
For more background
- Mankiw Economics, Chapter 21.
Assigned work
- Case of the Day: Measuring Utility. This case is based on the study examined on page 122 of Goolbie's Chapter 4.
- Problem Set #3 is due on Wednesday, September 25.
Monday, September 23: 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
-
Goolsbee, Levitt, and Syverson, Sections 4.3 - 4.5.
For more background
- Mankiw Economics, Chapter 21.
Assigned work
- Case of the Day: Oil Prices and Consumer Demand. This case involves a short reading, analysis of some data, and answering a few questions.
- Problem Set #3 is due on Wednesday, September 25.
Wednesday, September 25: Individual and market demand curves
Aggregating individual demand curves to find market demand.
Required reading
- Goolsbee, Levitt, and Syverson, Chapter 5.
Assigned work
- Problem Set #3 is due today in class.
3. Firms, Production, and the Supply of Products
Friday, September 27: 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
-
Goolsbee, Levitt, and Syverson, Chapter 6.
For more background
- Mankiw Economics, Chapter 13.
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. You don't need to submit questions today, but bring them to class.
- Problem Set #4 consists of two days worth of accumulated case questions on the dairy farm case. It is due on Wednesday, October 2.
Monday, September 30: 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
-
Goolsbee, Levitt, and Syverson, Chapter 7.
For more background
- Mankiw Economics, Chapter 13.
Assigned work
- Case of the Day: Continuing discussion of dairy farming case. Again, no submission is required today.
- Problem Set #4 is due on Wednesday, October 2.
Wednesday, October 2: 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
-
Goolsbee, Levitt, and Syverson, Sections 8.1 - 8.3.
For more background
- Mankiw Economics, Chapter 14.
Assigned work
- Problem Set #4 is due today in class.
Friday, October 4: Competitive Equilibrium in the Short Run and the Long Run
Entry, exit, and scale of production in long-run equilibrium.
Required reading
-
Goolsbee, Levitt, and Syverson, Sections 8-4 - 8.6.
For more background
- Mankiw Economics, Chapter 14.
Assigned work
- Case of the Day: The Washington Sales Tax and Interstate Competition in Retail Trade. Brief reading based on a Reed senior thesis with a few questions to answer.
- Problem Set #5 is due on Wednesday, October 9
Monday, October 7: Demand for Factor Inputs under Competition
Profit maximization on the input side of the firm. Marginal product, marginal revenue product, and the demand for factors. Factor-market equilibrium under competition.
Required reading
- Mankiw Economics, Chapter 18.
- Pindyck, Robert S., and Daniel L. Rubinfeld, Microeconomics, 6th edition, Sections 14.1 and 14.2 (on reserve).
Assigned work
- Case of the Day: Dairy Farming from the Input Side
- Problem Set #5 is due on Wednesday, October 9
Wednesday, October 9: Labor Markets
Supply of labor. Effects of unions. Equilibrium wages and the characteristics of workers and jobs.
Required reading
- Mankiw Economics, Chapters 18 and 19.
Assigned work
- Problem Set #5 is due today in class.
Friday, October 11: Market Power and Monopoly
Why monopolies arise. Demand and marginal revenue for a monopoly. Profit maximization.
Required reading
-
Goolsbee, Levitt, and Syverson, Chapter 9.
For more background
- Mankiw Economics, Chapter 15.
Assigned work
- Case of the Day: The New York City Ice Trust. A short reserve reading and a few questions.
Monday, October 14: Applications of Monopoly and Monopolistic Competition
Efficiency costs of monopoly. Antitrust laws. Price discrimination. Entry of producers of substitutes under monopolistic competition.
Required reading
-
Goolsbee, Levitt, and Syverson, Chapter 10.
For more background
- Mankiw Economics, Chapter 16.
Assigned work
- Case of the Day: Price Discrimination in Higher Education. A brief introduction and a few questions.
Wednesday, October 16: Review and Catch-Up Day
No reading assignments today.
Assigned work
- None!
Friday, October 18: Mid-Term Exam
Exam will be held from 11-11:50. It will be closed-book and cover all material discussed to date in the course.
October 19 through 26: Fall Break
Enjoy! But you might want to start thinking about the Economic Naturalist assignment that is due on October 30.
Monday, October 28: Imperfect Competition and Oligopoly
Characteristics of oligopoly. Collusion and the prisoners' dilemma. Bertrand and Cournot equilibria.
Required reading
-
Goolsbee, Levitt, and Syverson, Chapter 11.
For more background
- Mankiw Economics, Chapter 17.
Assigned work
- Case of the Day: The Global Lysine Price-Fixing Conspiracy of 1992-95. A reading discussion a famous price-fixing case with a few questions to answer.
- The Economic Naturalist assignment is due on Wednesday, October 30.
Wednesday, October 30: Game Theory and Oligopolistic Interaction
Basic concepts of game theory applied to the interaction of firms in an oligopoly.
Required reading
-
Goolsbee, Levitt, and Syverson, Chapter 12.
Assigned work
- The Economic Naturalist assignment is due today in class.
4. Microeconomic Topics
Friday, November 1: Capital Markets
Discounting future receipts and payments. Net present value. Markets for borrowing and lending and the equilibrium interest rate. Decision-making under uncertainty. Risk and interest rates.
Required reading
-
Goolsbee, Levitt, and Syverson, Chapter 13.
Assigned work
- Case of the Day: Higher Education as an Investment. A brief examination of the investment that you are all making in human capital, and how to evaluate its payoff.
- Problem Set #6 is due on Wednesday, November 6.
Monday, November 4: General Equilibrium and Efficiency
Efficiency implications of simultaneous general equilibrium in competitive product and factor markets.
Required reading
-
Goolsbee, Levitt, and Syverson, Chapter 14.
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 6. After today's class, we will have completed all the material covered on this problem set.
Wednesday, November 6: 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
-
Goolsbee, Levitt, and Syverson, Chapter 15.
Assigned work
- Problem Set #6 is due in class today.
Friday, November 8: Externalities
Externalities and efficiency. Property rights and the Coase Theorem.
Required reading
-
Goolsbee, Levitt, and Syverson, Sections 16.1 - 16.3.
For more background
- Mankiw Economics, Chapter 10.
Assigned work
- Case of the Day: The Grand Banks Fishery. An examination of the tragedy of the commons in fishing.
Monday, November 11: Public Goods
Definition and nature of public goods. Efficiency in the provision of public goods. Other economic roles of government.
Required reading
-
Goolsbee, Levitt, and Syverson, Sections 16.4 and 16.5.
For more background
- Mankiw Economics, Chapter 11.
Assigned work
- Case of the Day: To be announced.
Wednesday, November 13: Income Distribution
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
- Mankiw Economics, Chapter 20.
- 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.
Friday, November 15: Innovation and Technology
Sources of new technology: invention and innovation. The role of and microeconomic incentives for research and development.
Required reading
-
Schumpeter Josef A., Capitalism, Socialism, and Democracy, 3rd ed., 1950, Chapter VII, "The Process of Creative Destruction."
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.
5. Macroeconomics
Monday, November 18: Introduction to Macroeconomics
Relationship of macroeconomics and microeconomics. Objectives of macroeconomic analysis. Major schools of macroeconomic thought.
Required reading
-
Mankiw, N. Gregory, "The Macroeconomist as Scientist and Engineer," Journal of Economic Perspectives 20(4), October 2006, 29-46.
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.
Wednesday, November 20: 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, 6th ed., Mason, Ohio: South-Western/Cengage Learning, 2012, Chapters 10 (23) and 11 (24) (hereafter, Mankiw). Note: This book contains the macroeconomics chapters from Principles of Economics. The chapter numbers shown in parentheses in these references are from the longer text.)
Recommended optional reading
- Landefeld, J. Steven, Eugene P. Seskin, and Barbara Fraumeni, "Taking the Pulse of the Economy: Measuring GDP," Journal of Economic Perspectives 22(2): 193-216, Spring 2008.
Assigned work
- Case of the Day: Macroeconomics and Happiness. A short reading and some questions.
Friday, November 22: Economic Growth
Basic facts of long-run economic growth.
Required reading
-
Mankiw, Chapter 12 (25).
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.
Monday, November 25: 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 (26) and 14 (27).
Assigned work
- Case of the Day: Mortgage-Backed Securities and Allocation of Risk. How simple and exotic financial assets allow markets to allocate risk efficiently, and how they made the financial system more fragile.
- Problem Set #7 is due in class on Wednesday, November 27.
Wednesday, November 27: Aggregate Labor Market and Unemployment
Aggregate demand for and supply of labor. Kinds of unemployment. Natural vs. cyclical unemployment.
Required reading
-
Mankiw, Chapter 15 (28).
Assigned work
- Problem Set #7 is due today in class.
- Topics for Group research projects will be made available today. This is a group assignment that is the final "homework" of the semester. 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 11, and you will be asked to present your project results (or skit) at a session to be held from 1:00 to 2:30 on Friday, December 13.
Monday, December 2: 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 (29) and 17 (30).
Assigned work
- Case of the Day: Money and Inflation in Argentina. A short reading with a few questions.
- Problem Set #8 is due Wednesday, December 4.
- Group research project reports are due Wednesday, December 11.
Wednesday, December 4: 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 (33).
Assigned work
- Problem Set #8 is due today in class.
- Group research project reports are due Wednesday, December 11.
Friday, December 6: 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 (34) and 23 (36).
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.
- Group research project reports are due Wednesday, December 11.
Monday, December 9: Unemployment/Inflation Tradeoffs
The traditional Phillips curve and its modern successors. Appropriate goals for monetary and fiscal policy.
Required reading
-
Mankiw, Chapter 22 (35).
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.
- Group research project reports are due Wednesday, December 11.
Wednesday, December 11: The Financial Crisis and 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
-
Brunnermeier, Markus K., "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives 23 (1), Winter 2009, 77-100.
-
Bernanke, Ben, "Aiding the Economy: What the Fed Did and Why," Washington Post, November 5, 2010.
Assigned work
- Group Research Project Reports are due today in class. A presentation session will be held in Vollum 120 from 1:00 to 2:30 on Friday, December 13.
Final Exam
The final exam will occur Wednesday, December 18, from 8am to noon.