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ECON 351x- MICROECONOMICS for BUSINESS Syllabus, Spring 2015 Class Lectures: Mondays and Wednesdays 6:00-7:50 pm. Professor: Dr. Richard Eastin Class number: 26349R Classroom: SLH 100 Office Hours: Tuesdays 10:00-12:00 & 2:00-4:00, by appointment please, (and other times by appointment if you cannot make the scheduled hours.) Office: ACC 301-H Office Phone: 213-740-6493 E-mail: [email protected] Online communication regarding this course will be via Blackboard. ABOUT THIS COURSE Economic analysis is a cornerstone of fundamental decision making in virtually all areas of business. For example, the economics of consumer choice underlies much of modern marketing strategy, including pricing, segmentation, and advertising. The theory of the firm contributes to a sound understanding of cost accounting as well as production and location decisions. Economic analysis of intertemporal decisions and behavior in a risky environment form the foundation of financial practice. Finally, the study of social goods, market failures and industrial structure is necessary for an understanding of government’s role in a market system. Business Economics is designed to examine all of those areas in which economic reasoning is a necessary basis for making informed business decisions. The student who successfully completes ECON 351X should be able to apply microeconomic analysis to issues of real world interest both within and beyond the area of business. COURSE LEARNING OBJECTIVES Upon completion of this course you will be able to: 1. Apply graphical and algebraic analytical technics to the analysis of resource allocation through an understanding of economic theories and models. 2. Apply the basic demand-supply market model to goods markets and factor markets by identifying and analyzing the values of equilibrium prices and quantities as determined by market forces. 3. Differentiate and apply different aspects of neoclassical economic theory by examining the dynamics of consumer, firm, and market forces and calculating their impacts. 4. Apply the model of behavior in risky circumstances by calculating expected utility, expected income, and certainty equivalents. 5. Explain the role of game theory in economic models by representing various game-theoretic interactions. 6. Explore market power by examining the impact of monopoly, monopsony, and oligopoly on resource allocation. 7. Apply concepts of comparative advantage through calculation of gains from exchange, given two countries’ (or individuals’) production possibilities frontiers. Spring 2015 ECON 351x 6pm 1 8. Analyze the impact of various forms of government interference in markets by calculating the changes in consumer and producer surplus, and deadweight loss. 9. Analyze the impact of asymmetric information on market efficiency by explaining examples of adverse selection, moral hazard, and the principal-agent problem. 10. Understand public goods, and positive and negative externalities and how they relate to potential market failure. ALIGNMENT WITH MARSHALL SCHOOL OF BUSINESS PROGRAM LEARNING GOALS The above course learning objectives support primarily the first three of The Marshall School of Business’ program goals: 1. Our graduates will have an understanding of the key business areas and their interplay to effectively manage different types of modern enterprise. Course emphasis: High 2. Our graduates will have a global mindset demonstrating an understanding of the interplay of local, regional, and international markets, and economic, social and cultural issues. Course emphasis: Moderate 3. Our graduates will demonstrate critical thinking skills, decision-making, and problem-solving abilities to strategically navigate complex demands of business environments. Course emphasis: High 4. Our graduates will demonstrate leadership skills, aspiring to be informed, sensible, futureoriented leaders and innovators. Course emphasis: Low 5. Our graduates will demonstrate ethical reasoning skills, understand social, civic and professional responsibilities and aspire to add value to society. Course emphasis: Low 6. Our graduates will be effective communicators in speaking and writing to facilitate information flow in organizational, social, and intercultural contexts. Course emphasis: Low LECTURES AND DISCUSSION Students are expected to come prepared to discuss the reading assignment for each respective class period. The class period will typically be taken up with lecture, but discussion and student questions are very much encouraged. If I feel that a question leads us too far afield and would better be discussed outside of class, I’ll say so. Otherwise, interaction among students and between students and me is encouraged. TEXT The following text (hereafter referred to as TEXT) is required and available in the Bookstore: Microeconomics for Business Third Custom Edition (taken from Pindyck and Rubinfeld, Microeconomics 8th edition , Pearson Prentice Hall, and Hubbard and O’Brien Microeconomics 4th edition) Note: MyEconLab is not required in my class, though students might find it a useful supplement. I will not make assignments from MyEconLab. Additionally, students are strongly urged to read popular business publications, such as The Wall Street Journal daily. They will often find stories that use analysis learned in this class, and they are encouraged to refer to them in class. Spring 2015 ECON 351x 6pm 2 PERFORMANCE EVALUATION Each student will be assigned a grade reflecting the professor’s evaluation of the student’s mastery of the course material, as measured by the relative performance on the following exercises: (a) Quizzes (five will be assigned; lowest score ignored) 40% (total) (b) Midterm Examination March 4th 30% (c) Final Examination: May 6th, 7:00-9:00 pm 30% Although I reserve the right to make rare, minor adjustments to the semester grade to reflect truly exceptional class participation, there is no opportunity for earning “extra credit.” According to the Marshall School grading policy, the average grade for this course should be 3.0 (B). Marshall does not enforce a strict “curve” or grade distribution, but that grade is a reasonable expectation of the current course grade average. EXAMINATION POLICY The student is expected to make every reasonable effort to take all examinations at the scheduled time. Make-up midterm examinations will not be allowed. If a midterm is missed for an approved reason, the final examination weight will be increased to compensate for the missed grade. Approval for missed examinations will be rare indeed, and only with appropriate written documentation from an authoritative source indicating why the student was unable to appear for an examination. Normally, only a doctor’s certification of a severe medical problem will suffice. All examinations will be closed book. No hats or sunglasses are to be worn during examinations. You are responsible for checking to see that your examination contains the number of pages and questions referred to on the examination cover sheet. Violations of academic integrity will be treated very seriously. Each student is responsible for reading, understanding, and following the policies documented in SCAMPUS. No student will be allowed to take the final examination at a time or place other than that scheduled for this course. ADD/DROP PROCESS If you are absent six or more times prior to April 10th(the last day to withdraw from a course with a grade of “W”), I may ask you to withdraw from the class by that date. These policies maintain professionalism and ensure a system that is fair to all students. Statement on Academic Conduct and Support Systems Academic Conduct Plagiarism – presenting someone else’s ideas as your own, either verbatim or recast in your own words – is a serious academic offense with serious consequences. Please familiarize yourself with the discussion of plagiarism in SCampus in Section 11, Behavior Violating University Standardshttps://scampus.usc.edu/1100-behavior-violating-university-standards-and-appropriatesanctions/. Other forms of academic dishonesty are equally unacceptable. See additional information in SCampus and university policies on scientific misconduct, http://policy.usc.edu/scientific-misconduct/. Discrimination, sexual assault, and harassment are not tolerated by the university. You are encouraged to report any incidents to the Office of Equity and Diversity http://equity.usc.edu/ or to the Department of Spring 2015 ECON 351x 6pm 3 Public Safety http://capsnet.usc.edu/department/department-public-safety/online-forms/contact-us. This is important for the safety whole USC community. Another member of the university community – such as a friend, classmate, advisor, or faculty member – can help initiate the report, or can initiate the report on behalf of another person. The Center for Women and Men http://www.usc.edu/student-affairs/cwm/ provides 24/7 confidential support, and the sexual assault resource center webpage [email protected] describes reporting options and other resources. Support Systems A number of USC’s schools provide support for students who need help with scholarly writing. Check with your advisor or program staff to find out more. Students whose primary language is not English should check with the American Language Institute http://dornsife.usc.edu/ali, which sponsors courses and workshops specifically for international graduate students. The Office of Disability Services and Programs http://sait.usc.edu/academicsupport/centerprograms/dsp/home_index.htmlprovides certification for students with disabilities and helps arrange the relevant accommodations. If an officially declared emergency makes travel to campus infeasible, USC Emergency Information http://emergency.usc.edu/will provide safety and other updates, including ways in which instruction will be continued by means of blackboard, teleconferencing, and other technology. TOPICS, UNIT OBJECTIVES, AND READING ASSIGNMENTS The following table lists the topics and associated readings in order. To the best of my ability, I will adhere to the dates listed. However, if we should get a little behind or a little ahead, the order of the topics and readings will be followed. I cannot stress enough how important it is for you to read the text material carefully. Ideally, you will have read it at least once before lectures. And then after lectures I urge you to do another careful reading, making notes and trying to reproduce the analysis presented in the chapter. Spring 2015 ECON 351x 6pm 4 Session 1 Date 1/12 Topics Introduction: Reviews your understanding of models, markets, prices (both real and nominal). Text Chapter Ch. 1 2 1/14 Trade-offs, Comparative Advantage, and the Market System UNIT OBJECTIVE: Recognize the principles of trade-offs, comparative advantage, and gains from trade through calculation of gains from exchange, given two countries’ (or individuals’) production possibilities frontiers. Ch. 2 & 3 3 12/19 MLK Day NO CLASS 1/21 The Basics of Supply and Demand UNIT OBJECTIVE: Explore the basic demand-supply market model by determining (graphically and algebraically) the values of equilibrium price and quantity, and by calculating the impact on those values of a shift in demand and/or supply functions, and by calculating various elasticities. 4 5 1/26 1/28 6 2/2 7 2/4 8 2/9 9 2/11 Quiz #1 in last 30 minutes of class Consumer Behavior UNIT OBJECTIVE: Interpret neoclassical consumer theory through graphical manipulation of indifference curves and budget constraints, showing consumer equilibrium and the impacts of changes in prices and income. Ch. 4 Ch. 5 Individual and Market Demand: Deriving demand curves from priceCh. 6 consumption curves. Relating elasticity, price changes, and total expenditure on a good. Income and substitution effects of a price change. Consumer surplus. Demand estimation. UNIT OBJECTIVE: Classify characteristics of the basic demand-supply market model by determining (graphically and algebraically) the values of equilibrium price and quantity, and by calculating the impact on those values of a shift in demand and/or supply functions, and by calculating various elasticities. Uncertainty and Consumer Behavior UNIT OBJECTIVE: Use the model of behavior in risky circumstances by calculating expected utility, expected income, and certainty equivalents. Spring 2015 ECON 351x 6pm 5 Ch. 7 2/16 Presidents’ Day NO CLASS 10 2/18 Quiz #2 in last 30 minutes of class 11 2/23 Production functions, production with one variable input: TPL, MPL, APL. Production with more than one variable input: Isoquants and trade-offs; returns to scale. UNIT OBJECTIVE: Interpret neoclassical theory of the firm through graphical exposition of production functions, marginal and average product of labor functions, and by explaining returns to scale. Ch. 8 12 2/25 13 3/2 Cost of Production: Opportunity cost, sunk cost, avoidable fixed cost. Deriving short-run cost functions. UNIT OBJECTIVE: Use neoclassical cost theory by graphically deriving the short-run marginal cost curve from marginal product of labor, by manipulating isoquant and isocost curves, and by showing how the long-run average cost curve relates to returns to scale. Long-run costs and economies/diseconomies of scale. Multi-product firms and economies of scope. Ch. 9 14 15 3/4 3/9 **************MIDTERM EXAM********************** Profit Maximization and Competitive Supply: Total revenue, marginal revenue, and profit maximization: How the competitive firm determines optimal output. Short-run supply curves. Long-run industry supply. UNIT OBJECTIVE: Apply neoclassical production and cost theory to the competitive firm, through derivation of the short-run competitive supply curve, aggregating firms’ supply curves graphically and demonstrating an understanding of the impacts of input prices on shortand long-run market supply curves. 16 3/11 Analysis of Competitive Markets: Government interferences in market equilibrium: price ceilings/floors; tariffs/quotas, per-unit taxes and subsidies. UNIT OBJECTIVE: Analyze the impact of various forms of government interference in markets by calculating graphically and algebraically the changes in consumer and producer surplus, and deadweight loss. Spring 2015 ECON 351x 6pm 6 Ch.10 Ch.11 3/16 SPRING BREAK NO CLASS 3/18 SPRING BREAK NO CLASS 17 3/23 Market Power: Monopoly and Monopsony UNIT OBJECTIVE: Interpret the concept of market power by determining graphically and algebraically the profit-maximizing price/quantity combination for a pure monopolist and a pure monopsonist, and identifying efficiency losses from monopoly and monopsony, and explaining non-uniform pricing practices such as discrimination, two-part tariffs, and bundling. Ch.12 18 3/25 Natural monopoly and regulation. Buyer power: Monopsony (Continuation of previous UNIT OBJECTIVE above). Quiz #3 in last 30 minutes of class Ch.12 (continued) 19 3/30 Pricing with Market Power: Pricing to capture consumer surplus. Price discrimination, two-part tariffs, bundling, advertising (Continuation of previous UNIT OBJECTIVE above). Ch.13 20 4/1 21 4/6 Monopolistic Competition and Oligopoly: Product differentiation with free entry. Historical oligopoly models: Cournot, Bertrand, Stackelberg. Duopoly collusion and the prisoners’ dilemma. Cartels and price leadership. UNIT OBJECTIVE: Explore impacts of imperfect competition through solving graphically and algebraically various monopolistically competitive and oligopoly models. Ch.14 22 4/8 Quiz #4 in last 30 minutes of class Spring 2015 ECON 351x 6pm 7 23 413 24 4/15 25 4/20 26 4/22 27 4/27 28 4/29 5/6 Game Theory and Competitive Strategy UNIT OBJECTIVE: Identify the role of game theory in economic models by representing various game-theoretic interactions in normalform and extensive-form, solving for Nash equilibriums, and applying games to real-world phenomena. Ch.15 Markets for Factor Inputs: Firm’s demand for variable inputs. Output effect of a wage change. Market demand for inputs. Labor supply. UNIT OBJECTIVE: Recognize the theory of factor markets through graphically deriving a firm’s demand for labor, the household’s supply of labor, aggregating those respective functions, and analyzing various exogenous impacts on labor markets Quiz #5 in last 30 minutes of class Ch.16 Markets with Asymmetric Information: Adverse selection and the lemons problem. Moral hazard. Principal/agent problems UNIT OBJECTIVE: Outline the impact of asymmetric information on market efficiency by explaining and giving examples of adverse selection, moral hazard, and the principal-agent problem. Externalities and Public Goods: Spillover effects, inefficiency, and policy responses. Coase theorem. Non-rival goods, non-exclusive goods, and market failure for public goods. UNIT OBJECTIVE: Explain how externalities and public goods are examples of market failure through graphically identifying and determining the extent of deadweight losses from externalities, by explaining various policy responses to externalities, and by explaining the nature of public goods and how they can result in market failure. Ch.17 7:00-9:00pm ***************FINAL EXAMINATION*********** Spring 2015 ECON 351x 6pm 8 Ch.18