Microeconomics 296:301

Department of Economics

University of Wisconsin-Milwaukee

 

James Peoples’ Lecture Notes

            808 Bolton Hall

            Phone: 414 229-4482  Fax:     414 229-3860

            e-mail: peoples@uwm.edu

            Office Hours 2-3 pm Tuesday and Thursday

            Classroom: Lubar S195

            Class days: Tuesday and Thursday, 4-5:15 pm

 

Course Requirements:  Work required for this class will consist of four problem sets worth a total of 25 percent of the final grade, two term examinations each worth 25 percent of the final grade, and a final examination worth 25 percent of the final grade.

 

Regulation on Excused Absence for an Exam: Make-up exams are not provided, rather students are allowed to use his/her performance on the remaining exams to determine his/her final grade. Personal reasons for excused absences include a death in the family, and pre-scheduled University athletic commitments.  Authorized documentation must be provided for verification.

 

Introduction: In this course, we will analyze the foundations of microeconomics with the purpose of helping you to better understand your business environment, and to help develop a framework for making better business decisions.  We will study how markets perform under a wide variety of circumstances.  This observation will be made using the concepts of optimization and equilibrium.  Optimization is the process of making decisions that are superior to any alternatives.  Understanding this concept helps to predict the behavior of potential customers, suppliers and rival firms.  Equilibrium helps to predict potential pricing and output behavior of firms as well as consumption and savings behavior of consumers. 

 

Readings and Course Materials: The course materials consist of the textbook, Microeconomics by Robert Pindyck and Daniel Rubinfeld and the case packet.  The case packet contains lecture notes and problem sets.  The case packet will be available on D2L.

 

Far and away the most important of these materials is the set of lecture notes.  They contain all the information that you will need to take away from the course.  You should thus view your goal as completely understanding the material in these notes, and use the other material precisely to the degree that they help you to do so.  Some of you will find that reading the textbook chapters really helps you to understand the lecture note materials, while others will find that the lecture notes alone are adequate.  Similarly, the study guide will be of varying use depending on your taste and background.  It will be especially helpful if you find the textbook to be overly detailed.

 

The notes have two main purposes.  First, because you have them, you can spend your time thinking rather the playing the role of stenographer.  Second, the notes allow me to present material in a order and way I believe is most effective.

 

Remember: The lecture notes and the textbook go hand in hand.  The textbook contains such a substantial amount of material that it can not be reasonably covered in one quarter.  Hence, the lecture notes are written with the purpose of focusing on a subset of important ideas.  At points where you find it difficult to understand the lecture notes, the text will give you an alternative exposition.  The text will also provide some background material that might enhance your understanding.

 

Learning the Material: What follows is a possible approach for using the course material and resources:

 

Before class: Begin by reading the lecture notes for that week with the objective of getting a general idea of the topic.  Read supplemental articles that you find interesting.  Then read the relevant sections of the textbook, paying particular attention to concepts that are emphasized in the notes.

 

After class:  Begin by going over the class notes carefully.  At this point, your goal should be able to obtain a complete understanding of the material covered in class.  You should use the textbook, the review sessions, your study mates, and me to resolve confusion over any concepts in the lecture notes.  The material builds from week to week, so do not put this off to the end of the course.

 

Exams: Practice exams are at the end of your case packet.  They are fairly representative of the type of exam that you will face in this class.

 

Problem sets:  Problem sets will be distributed at 4 week intervals excluding the first problem set which will be distributed by the second week. You should feel free to discuss these with your classmates, but please submit your own answers. Late problem sets will not be accepted without prior arrangement.  If you expect to be out of town you may wish to fax your problem sets to me.  Make sure that you address them clearly to me.

 

Mathematical preparation: Mathematics is inherent to understanding economics.  I will review needed techniques as I go along.

 


Course Outline and Readings

Topic 1: INTRODUCTION AND OVERVIEW

 

Main Ideas: Basic Supply and Demand

 

Readings:

            Lecture Notes 1.

            Pindyck and Rubinfeld Chapter-2, pages 21-61 Week 1

This chapter presents an overview of the supply and demand analysis. Emphasis should be placed on the determinants of demand and supply.  The analysis of elasticity will be presented in more detail when covering chapter 4.

 

Topic 1: CONSUMER DEMAND

 

Main Ideas: Utility Maximization, Demand Curve, Marginalism, Elasticity

 

Readings:

            Lecture Notes 2-4.

            Pindyck and Rubinfeld Chapter3, pages 67-105 Weeks 2-3.

                        This chapter presents the foundations for analyzing consumer purchasing decisions. Analysis of consumer behavior also includes the examination of income and price changes on consumers’ purchasing decisions.

 

            Pindyck and Rubinfeld Chapter 4, pages 111-149 Week 4.

                        This chapter uses the principles developed from consumer theory to examine individuals’ and market demand curves as well as the elasticity of demand.

 

(First term examination: Thursday October 6th; Review session Tuesday October 4th)

 

Topic 2: PRODUCER SUPPLY

 

Main Ideas: optimal input combinations, production function, economies of scale, and long run and short cost curves.

 

Readings:

            Lecture Notes 5, 6

            Pindyck and Rubinfeld Chapter 6, pages 195-220 Week 6

                        This chapter presents the principles of producer theory.       

 

            Pindyck and Rubinfeld Chapter 7, pages 221-260 Week 7

                       

This chapter presents the conditions required for the efficient use of labor and capital.  A family of cost curves is then constructed based on the principles of producer theory.

           

Topic 3: PERFECT COMPETITION

 

Main Ideas: marginal cost pricing, total surplus maximization, external costs

 

Readings:

            Lecture Notes 8, 9.

            Pindyck and Rubinfeld chapter 8, pages 271-305 Week 8

                        This chapter examines how price and output are determined in a perfectly competitive market

 

            Pindyck and Rubinfeld chapter 9, pages 309-342 Week 9

                        This chapter examines how perfect competition can promote economic efficiency.

 

(Second term examination: Thursday November 10th; Review session Tuesday the 8th)

 

Topic 4: MONOPOLY

 

Main Ideas:     supra-normal profits, price discrimination, deadweight loss to society.

 

Readings:

            Lecture Note 9.

            Pindyck and Rubinfeld Chapter 10, pages 349-373 Week 11.

                        This chapter examines the social cost of monopoly pricing

 

Thanksgiving Break November 23-27

 

 

Pindyck and Rubinfeld Chapter 11, pages 392-430 Week 13.

                        This chapter examines price and output determination when only one firm exists in a market.

 

 

Topic 5: OLIGOPOLY

 

Main ideas: product differentiation, collusion, mark-up pricing, non-price competition, and Nash equilibrium.

 

Readings:

            Lecture Notes 11 and 12.

            Pindyck and Rubinfeld chapters 12-13, pages 449-513 Weeks 14-15

                        These chapters examine price and output determination of the more commonly observed market structures depicted by monopolistic competition and oligopolistic industries. In addition, these chapters present the basic descriptions of the objectives and concepts of game theory.

 

 

Topic 6: ASYMMETRIC INFORMATION

 

Main idea: market failure

 

Readings:

            Lecture Notes 13.

Pindyck and Rubinfeld chapter 17, pages 617-644 Weeks 15-16

                        This chapter explores individual economic decisions when individuals’ economic agents have different amounts of information regarding a product or service.  Strategies to address such unequal information are also examined

 (FINAL EXAMINATION: 3-5 pm, Wednesday December 21st)