ECO 201B Basic Microeconomics
Spring 2013
Dr. Robert Jantzen
Economics Department

 
 

Where and When
Course Description
Course Objectives
Text
Course Requirements
   Course Outline
Contact Information
College Policy for All Courses
Announcements


Where and When

In the Spring of 2013 this course meets at 11 a.m. on Mondays and Wednesdays in Amend107. Classes begin on 1/16/13.

Course Description

An investigation into the components of capitalistic market economies.  An analysis of market pricing and production dynamics, consumer demand, producer optimization, differing market structures, business regulation, wage and employment levels, unions, and income inequality.  Formerly ECO 206.  Not open to students who have taken ECO 1101.  3 credits.
 

Course Objectives

The primary objective of this course is to impart to students a working knowledge of how capitalistic markets and firms operate. Students will learn how markets establish price, production, wage and employment levels, and the likely consequences of government attempts to alter market outcomes.  Students will also learn optimization strategies for profit-seeking businesses in a variety of product market environments.  Students will also learn to assess the efficiency of government activities.  Specific objectives for each topic are outlined below.
 

Text

 
Dolan, Edwin.  2010.  Introduction to Microeconomics: 4th ed.  Reno, NV: Best Value Textbooks (ISBN #978-1-60229-961-0 ).   Additional xeroxed readings will be distributed to the class at appropriate times.  The textbook is available at the Iona College bookstore (suggested retail $50), and as an E-textbook from the publisher @ http://www.bvtstudents.com/details.php?5  for $20.  Prices are approximate.

Course Requirements and Grading

Student grades for the course will be determined as follows:

Exams (4)                                 =  90% of the course grade.
Homeworks & Class                =   10% of the course grade.
       Participation

No extra credit work is available and no makeups will be given for any of the exams or homework assignments.  The lowest exam grade, however, will be disregarded in determining the course grade.  Obviously, neither plagiarism nor cheating is acceptable behavior, and will warrant failure of the homework/exam involved.  Being late for a class counts as an absence.  Any student who misses ten or more classes may be assigned the FA (failed for absences) grade.
 

Contact Information

Instructor:                 Robert Jantzen, Ph.D.
                                Professor of Economics
Office Location:        Economics Department, Spellman Hall, 2nd floor
Voice:                      (914) 637-2731
Fax:                         (914) 633-2511
Office Hours:            M & W 1:30 - 2:30 p.m., by appointment.
E-mail:                     RJantzen@Iona.edu
WebPage:                www.iona.edu/faculty/rjantzen/homepage.htm

Course Outline (tentative dates):
 
 
Week(s) Beginning:
Topic:
Reading:
1/16
  Introduction
Chapter 1
1/21 & 1/28
  Supply and Demand
Chapter 2 & Khan Links: S1, D1, S&D, S2,D2, D3, D4, D5, S&D2
2/4
Exam#1
2/11 
  Supply & Demand Elasticities
Chapter 3 & Khan Links:  Ed1, Ed2, Ed3, Ed4, Ed5, Ed6, Es1
2/18
 Consumer Choice
Chapter 5 & Khan Links:  MB, CS1, CS2, PS, DW1, DW2, DW3
2/25
 Exam#2
 
3/4
 Production and Costs
Chapter 8 & Khan Links:  C1, C2, C3, C4
3/18 & 3/25
 Pure Competition and Monopoly
Chapters 9 & 10 & Khan Links: PC1, PC2, PC3, M1, M2, M3, M4, M5
4/8
Exam#3
4/15
Imperfect Competition
Chapter 11 & Khan Links: IPC1, IPC2, IPC3
4/22
 Market Failures and
       Government Policies
Chapters 4 & 6 & Khan Links:  Ext1, Ext2, Ext3, Pub1
4/29
 Health Care Economics
 
4/29
 Labor Markets and 
       Incomes
Chapters 15 & 16
 5/6
Exam#4 
 

 
 
 
I.  Introduction
Chapter 1.

 

Objectives:
    1.  Define economics, and the two fundamental facts necessitating the study of economics.
    2.  Economics is fundamentally about how to make good choices from alternatives.  Explain the foundations of economic thinking.  Can those foundations be applied to issues that don't concern money and material things?

II.  Foundations
 
 
A.  Supply and Demand 
Chapter 2.

 

Objectives:
   1. Explain the law of demand, and what a demand curve shows. Why does the curve slope downward, i.e., why are price and quantity demanded inversely related?
   2. Explain the law of supply, and what a supply curve shows.  Why does the curve slope upward, i.e., why are price and quantity supplied positively related?
   3. How are price and output levels determined in product markets, according to the supply and demand model?  What is meant by equilibrium price and quantity?  Explain how markets ensure that the amount people want to sell is in balance with the amount people want to buy, i.e., Qs=Qd.  Graphically illustrate.
   4. Why do prices and output levels change in product markets?  If prices increase or decrease, will the underlying equilibrium situation change?  Why or why not?
   5. Explain what a change in demand means, and how it is illustrated. What nonprice factors could cause demand to change?  How so?  Why don't price changes in product markets change demand?  Why do economists define a change in demand in such a special way?
   6. Explain what a change in supply means, and how it is illustrated. What nonprice factors could cause supply to change? How so?  Why don't price changes in product markets change supply?  Why do economists define a change in supply in such a special way?
   7. How will each of the following changes in demand (D) or supply(S) affect equilibrium price and quantity?  Do price and quantity rise, fall, or stay the same, or are the answers indeterminate?  Verify your answers graphically.
        a.  S increases, D constant.
        b.  D increases, S constant.
        c.  Both S and D increase.
        d. S increases, D decreases.

 
 
B.  Supply & Demand Elasticities
Chapter 3.

 
Objectives:
   1. Define the price elasticity of demand.  How is it computed?  Show.  Compare and contrast elastic, unit elastic,  and inelastic demand.  What are the determinants of the price elasticity of demand?  How so?
   2. Define the price elasticity of supply.  How is it computed?  Show. Compare and contrast elastic, unit elastic, and inelastic supply. What are the determinants of the price elasticity of supply?  How so?
   3. If demand is price elastic, how will total revenues to a firm change if prices are increased or decreased?  What if demand is inelastic?  What are the implications for pricing strategy if a firm wants to maximize profits or minimize losses?
   4.  Web-Based Question:  Stop & Shop is a big grocery chain which has several stores in the Iona area.  Go to Stop & Shop's website, http://www.stopandshop.com, and examine the latest Weekly Circular for the New Rochelle Store (zip code 10801).   Check out this week's sale items and assess whether they have elastic or inelastic demand.   Is Stop & Shop's sales practice consistent with what economic theory argues about sale items? 
   5. Compute the elasticities of demand and supply for the following data, first if price increases from 7.50 to 8.50, and then if price increases from 2.50 to 3.50. When are supply and demand elastic and inelastic?

    Qs      PriceQd
    15       9.50         1
    13       8.50         3                    [Es = 4/3,
    11       7.50         5                    Ed = -4  ]
    9        6.50         7
    7        5.50         9
    5        4.50        11
    3        3.50        13                   [Es = 3,
    1        2.50        15                   Ed = -3/7]

   6.  In the interest of promoting the general welfare, government has on occasion intervened in the marketplace by establishing price ceilings and floors.  Explain, and graphically illustrate, what is likely to happen if the government enacts a price ceiling(or floor) and are the elasticities of supply and demand important?  If so, why?
   7.  When demand changes, how does the elasticity of supply effect the resulting change in equilibrium price and quantity?   Why so?
   8.  When supply changes, how does the elasticity of demand effect the resulting change in equilibrium price and quantity?   Why so?
   9.  Sales taxes are very popular with state governments.  Examine the role of the elasticities of supply and demand in determining:
    a.  Who pays the tax, i.e., sellers or buyers?  Why so?
    b.  How much revenue the tax will raise for the state? Why?

III.  Product Markets
 
 
A.  Consumer Choice
 Chapter 5.

 

Objectives:
   1. Explain the law of demand in terms of the income-  substitution effects and in terms of marginal utility theory.
   2. For what kinds of items is the income effect likely to be important?  Why?  For what items can we ignore it?  Why?  What about the substitution effect?  When, and why, is it important and not important?
   3. Why is it that a very valuable product like clean water has a much lower price than an item like diamonds?  Explain in terms of marginal utility.
   4.   In a competitive market, what is consumer surplus?  What is producer surplus?  What is total surplus?   Illustrate with a supply/demand example.  Show why allowing a company to monopolize the competitive industry would reducing total surplus.
   5.   Explain the role of time costs in determining consumer demand.  How do time costs effect the price elasticity of demand?

 
B.  Production and Costs 
 Chapter 8.

 
Objectives:
   1.  Explain how the economic concept of costs differs from the accounting concept.
   2.  Explain the difference between Fixed Costs and Variable Costs.
   3.  Explain the concept of diminishing returns.  How does it effect the behavior of short run costs as production increases?
   4.  Explain the following short run cost concepts:
     a. Average Total Cost; b. Average Variable Cost; c. Average Fixed Cost; and
     d. Marginal Cost.
   5.  How are long run cost estimates derived, i.e., Average Costs and Marginal Costs?  What do they represent?
   6.  Explain economies of scale, constant returns to scale, and diseconomies of scale, and their relation to long run costs.  How is industrial structure affected by the above? Why does the behavior of long run costs differ between companies.
   7.  Web-Based Question:  Check out the Fortune 500 list of the largest U.S. firms at http://www.fortune.com/.  From the top 10 firms, select three firms from three different industries and discuss the likely sources of the economies of scale that underlie their large size.
    8. Click here to open an MS-Excel worksheet containing cost numbers for a hypothetical firm.   Complete the table by computing Average Fixed Cost, Average Variable Cost, Average Total Cost and Marginal Cost.  What is this firm's most efficient production level?  NOTE:  You can either print out the table and calculate the numbers by hand or you can enter formulas into the "cells" and let Excel do the work for you.  For example, the Average Fixed Cost for 10 units (in cell E5) is equal to the Total Fixed Cost for 10 units (in cell B5) divided by the total output (in cell A5).   To get Excel to calculate AFC for you, click on cell E5 and type in =b5/a5 and hit the ENTER key.  You can also copy that formula to  the other Average Fixed Cost cells by left-clicking on the bottom right corner of cell E5 and dragging the formula down across all the other AFC cells.
    9.  Click here to open another MS-Excel worksheet containing cost numbers for a hypothetical firm.   Complete the table by computing Average Fixed Cost, Average Variable Cost, Average Total Cost and Marginal Cost.  What is this firm's most efficient production level? 

 
 
C. Pure Competition 
 Chapter 9.

 
Objectives:
   1.  What are the characteristics of a purely competitive market?
   2.  How are price and output levels determined in the overall market and for the individual firm?  Explain fully how the firm will decide how much to produce and what to charge in order to maximize its profits or minimize its losses both in the short run and the long run.  Why does marginal cost determine the willingness of a firm to sell at differing prices?  What is the maximum amount any firm should be willing to lose?
    3.  Using the table of production costs contained Question IIIB.8 above, answer the following questions, assuming the firm operates in a purely competitive market:
    i.   What is the firm's maximum allowable loss?
    ii.  What output level would you advise if the market price was 22?  What is your level of profits?  Are you being most efficient?
    iii.   What would you advise if the market price fell to 17?  Profits?
    iv.  What would you advise if the price fell to 12?  Profits?
    v. The industry has been struck by disaster and the price has fallen to 7.  What now is your short run advice?  Profits?
    4.  Using the table of production costs contained Question IIIB.9 above, answer the following questions, assuming the firm operates in a purely competitive market:
    i.   What is the firm's maximum allowable loss?
    ii.  What output level would you advise if the market price was 7?  What is your level of profits?  Are you being most efficient?
    iii.   What would you advise if the market price fell to 4?  Profits?
    iv.  What would you advise if the price fell to 2.5?  Profits?
    v. The industry has been struck by disaster and the price has fallen to 1.  What now is your short run advice?  Profits?
    5.  What are the advantages of having purely competitive markets?  What are the disadvantages?
    6.  Web-Based Question:  Go to the Census Bureau website at http://www.census.gov/
and select Economic Census, then Comparative Statistics, and then Manufacturing.  Identify the three manufacturing industries that experienced the largest percentage increase in the number of firms between 2002 and 1997.  Find the three with the largest decrease also.  What factor is the most likely cause of the entry and exit differences between your two groups?

 
D.  Monopoly
 Chapter 10.

 
Objectives:
   1.   What is a monopoly?  What creates a monopoly?
   2.  How should the monopolist determine how much output should be produced, and what price to charge if (s)he wants to maximize profits or minimize losses in the short run?  What kind of data are needed?  Be specific.  What about the long run?  Data?
   3. If a monopolist suffers an economic loss in the short run, should (s)he continue to produce output?  In the long run?
   4. Explain how price and marginal revenue are related for a monopolist. Give an example.
   5. Are monopolies good or bad for the consuming public?  How?
   6. Using the cost data contained in Question IIIB.8 above, and the demand data below:

     Price     Quantity demanded
      100       0
      90        10
      80        20
      70        30
      60       40
      50       50
      40        60
      30       70
      20        80
      10        90
      0         100

    a.  Compute the marginal revenue of each unit of output.
    b.  What is the profit maximizing (loss minimizing level) of output for this firm?  What price will it charge?  How much profit will it earn?
    c.  If the quantity demanded drops by one unit at every price (e.g., the new quantity demanded at a price of 90 is 0, at 80 it's 10, at 70 it's 20, etc.), what is the new profit maximizing price and output combination?
   7.  Define price discrimination.
   8.  What are necessary conditions for price discrimination?
   9.  Why do firms price discriminate?  Briefly describe how a firm should decide how much to charge and to produce if it discriminates?
   10.  Web-Based Question:  The best selling Principles of Microeconomics book is Microeconomics: With DiscoverEcon Online and Paul Solman DVD by Campbell R. McConnell and Stanley L. Brue.   Find out if the US based Amazon.com website (http://www.amazon.com/) charges the same price for this textbook as the United Kingdom website (http://www.amazon.co.uk/).  Make sure the editions are the same.  You can find the current pound/dollar exchange rate at www.federalreserve.gov/releases/H10/hist to convert the pound prices into dollars.  Are the two prices the same, and if different, why would Amazon be price discriminating in the way that it is?


 
E. Imperfect Competition
 Chapter 11.

 
Objectives:
   1. What are the characteristics of a monopolistically competitive industry?
   2.  How should monopolistically competitive firms decide on how much to produce and how much to charge?  What kind of data will they need? Is there a difference between the short and long run plans?
   3.  Is monopolistic competition superior/inferior to pure competition? How so?
   4.  Search the websites of the 4 major New York area cell phone carriers for the price and features of their "basic individual" phone plans, i.e., Verizon, Nextel/Sprint, Cingular/ATT and T-Mobile.  Are they the same or different?   Identify the nonprice competition factors that might lead you to buy from one company rather than the other.
   5.  What is an oligopoly?  Explain fully.
   6.  Why do certain industries have only a few firms?
   7.  What is meant by "mutual interdependence?"
   8.  Explain and graphically illustrate the Kinked-Demand Curve Model.  Why wouldn't firms want to engage in a price war?
   9.  What are the two ways oligopolies can set prices?  What is limit-pricing?  What is a cartel?  Why do cartels inevitably fail?
   10.  Are oligopolies good or bad for the consuming public?

 
IV.  Market Failures and Government Policies
 Chapters 4 & 6.

 
Objectives:
   1.   Explain the Public Interest (Market Failure) theory view of why business is regulated.  When and why are businesses regulated?
   2.   Explain the Public Choice (Economic Interest) theory view of why business is regulated?  When and why are businesses regulated?
   3.   Do the two theories above differ in terms of their judgments of the proper role of government regulation?  How so?
   4.   What are negative externalities?  Why do unregulated markets perform poorly when negative externalities are present?  Illustrate using the supply & demand model.
   5.  How can government make markets perform more efficiently if externalities are present?
   6.  What is a public good?  Why do markets perform poorly in providing public goods?  What government regulations are needed in the case of public goods?
   7.  Compare outright bans/limits with a market approach for controlling pollution.  Which is the most efficient strategy and why?  Illustrate.

 
V.  Health Care Economics  

 
Objectives:
  1.  What are the major economic issues concerning the health care industry?  How are they related?
  2. How important are economic factors in determining the demand for health care services?  Implications?
  3. Explain how cross-subsidization, adverse selection and moral hazard effect the health insurance industry.  Implications?
  4. How has the health insurance industry changed in the past two decades?  Implications?

 
VI.  Labor Markets and Incomes
 Chapters 13, 15 & 16.

 
Objectives:
  1.   What are the economic effects of unions?
  2.   How are labor markets affected by discrimination?  Why does discrimination occur?
  3.  What is poverty and how can it be measured?
  4.  What are some of the pitfalls for government efforts to reduce poverty?

 
 

College Policy for all courses and students: (full explanations of policy may be found in the College Catalog)

Cheating and Plagiarism:  Cheating and plagiarism subvert both the purpose of the College and the experience students derive from being at Iona. They are offenses which harm the offender and the students who do not cheat. The Iona community, therefore, pledges itself to do all in its power to prevent cheating and plagiarism, and to impose impartial sanctions upon those who harm themselves, their fellow students, and the entire community by academic dishonesty. Sanction and Appeals: At the beginning of each semester, professors shall state their policy with regard to intellectual dishonesty on the syllabi and course requirement forms they distribute. This policy shall include the penalty to be imposed when cheating or plagiarism is discovered; penalties may include failure for a given assignment or failure in the course. Students who are given a failing grade as a result of cheating, plagiarism or academic dishonesty are not permitted to withdraw from the class. Faculty members will report all incidents of cheating and plagiarism to the dean. After the first offense the student will be required to complete an instructional program on intellectual dishonesty. After the second offense, the student will no longer qualify for a degree with honors, and the student may be suspended from the college. In any allegation of intellectual dishonesty, every effort will be made to ensure justice; in all cases, educational assistance rather than adversarial proceedings will be sought. If, in conformity with this policy, a sanction is imposed, students may appeal first, to the professor who discovered the offence; second to the department chair; and third to the academic dean of the division involved. The decision of the academic dean is final. A student has the right to appeal the academic dean's decision to the provost if, and only if, the sanction involves a suspension from class or dismissal from the College. In such appeals, the decision of the provost is final. 

Attendance:  All students are required to attend all classes.  Iona has an attendance policy for which all students are accountable.  While class absence may be explained it is never excused.  Professors may weigh class absence in the class grade as they see fit.  Failure to attend class may result in a failure of the class for attendance(FA), when the student has missed 20% or more of the total class meetings.  The FA grade weighs as an F would in the final official transcript. 

Course and Teacher Evaluation(CTE):  Iona College now uses an on-line CTE system.  This system is administered by an outside company and all of the data is collected confidentially.  No student name or information will be linked to any feedback received by the instructor.  The information collected will be compiled in aggregate form by the agency and distributed back to the Iona administration and faculty, with select information made available to students who complete the CTE.  Your feedback in this process is an essential part of improving our course offerings and instructional effectiveness.  We want and value your point of view.* 
NOTE* You will receive several emails at your Iona email account about how and when the CTE will be administered with instructions how to proceed.
 


 
 


Economics Department || Iona College