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.
| Monday Class |
Wednesday Class |
Thursday Activity |
Friday Class |
|---|---|---|---|
|
Introduction to Econ 201 |
Essential concepts of economics Due: Case questions |
Discussion The economics of oil under (and now in) the Gulf of Mexico |
Supply, demand, and markets Due: Case questions |
|
September 6 Labor Day: No class |
Experiment: Double-oral auction Due: Problem set #1 |
Quantitative Skills Review Key mathematical concepts that are used extensively in economics, including algebra, linear models, and logarithms. |
Applications of the competitive market model Due: Case questions |
|
Elasticity Due: Case questions |
Modeling household decisions Due: Problem set #2 (Analysis of double-oral auction) |
Discussion Debriefing on the double-oral auction experiment |
Price and income changes in the household decision model
|
|
Consumer choice under uncertainty Due: Case questions |
Modeling production technology Due: Problem set #3 |
Lecture/demonstration A simple introduction to econometrics |
Costs and cost functions Due: Case questions |
|
Profit maximization in competition Due: Case questions |
Competitive equilibrium in the short and and the long run Due: Problem set #4 |
|
Analysis of competitive markets Due: Case questions |
|
First midterm exam |
Profit maximization in monopoly |
Discussion First midterm exam |
Monopoly and monopolistic competition Due: Case questions |
|
Oligopoly and collusion Due: Case questions |
Game theory and oligopoly Due: Problem set #5 |
Movie Viewing of The Informant |
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 |
|
Labor markets Due: Case questions |
Capital markets Due: "Economic Naturalist" assignment |
Experiment Product quality and general equilibrium |
General equilibrium Due: Case questions |
|
Economics of information Due: Case questions |
Externalities Due: Problem set #6 |
Experiment Voluntary contribution |
Public goods
|
|
Income distribution |
Second midterm exam |
Discussion Second midterm exam |
Introduction to macroeconomics Due: Case questions |
|
Measurement in macroeconomics Due: Case questions |
Economic growth Due: Case questions |
Discussion Selected economic naturalist submissions |
Technological change Due: Case questions |
|
Financial system Due: Case questions |
Aggregate labor market and unemployment Due: Problem set #7 |
November 25 Thanksgiving: No activity |
November 26 Thanksgiving break: No class |
|
Monetary system and inflation Due: Case questions
|
Aggregate demand and supply Due: Group research project reports |
Presentations and discussion Group research projects |
Monetary and fiscal policy Due: Case questions |
|
Phillips curve Due: Case questions |
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
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.
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
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
- Case of the day: Markets, Scalpers, and Queues: The Economics of Event Tickets. This case involves reading several short newspaper articles and answering a few questions.
- Problem set #1 is due on Wednesday, September 8. After today's class, you should have all the background you will need to do it.
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.
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
- 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 15.
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
- 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 15.
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
- Problem set #2 is due today in class.
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
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.
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
- 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 22.
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
- Problem Set #3 is due today in class.
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.
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
- Case of the Day: Continuing discussion of dairy farming case.
- Problem Set #4 is due on Wednesday, September 29.
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
- Problem Set #4 is due today in class.
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
- 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.
Monday, October 4: Mid-Term Exam #1
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
- 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.
- Problem Set #5 is due on Wednesday, October 13.
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
- Problem Set #5 is due today in class.
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
- Case of the Day: Immigration and the U.S. Labor Market. A couple of short readings and a few questions.
- Economic naturalist assignment is due on Wednesday, October 27.
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
- Economic naturalist assignment is due in class today.
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.
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
-
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.
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
- 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: Utility and Happiness in Macroeconomics. A short reading and some questions.
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
- Copies of the student submissions to be discussed will be available.
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
- 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 24.
- Group research project reports are due Wednesday, December 1.
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
- Problem set #7 is due today in class.
- Group research project reports are due Wednesday, December 1.
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
- Case of the Day: Money and Inflation in Argentina. A short reading with a few questions.
- Group research project reports are due Wednesday, December 1.
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
-
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
- Problem Set #8 is due today in class.
Final Exam
The final exam is scheduled for 8am to noon on Monday, December 13.