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Principles of Economics ECON 1200 Course Manual 2007 Printing Copyright © 1999 All rights reserved. No part of the material protected by this copyright may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or otherwise without the prior written permission from the copyright owner. Revised 1999, 2001, 2002, 2004. The University of Manitoba, Distance and Online Education Acknowledgments Content specialists: Dominka Wranik-Lohrenz Department of Economics Faculty of Arts University of Manitoba Instructional designer: Leona Dvorak, Ph.D. Distance and Online Education University of Manitoba Desktop publishers: Lorna Allard Distance and Online Education University of Manitoba Table of Contents Introduction to the Course ....................................................................1 Course description.........................................................................1 Course goals..................................................................................1 Course materials............................................................................1 Going online..................................................................................2 Topic overview .............................................................................4 Evaluation and grading .................................................................6 Working through the course..........................................................8 Final examination........................................................................10 Module 1 How Markets Operate......... Error! Bookmark not defined. Unit 1 What is Economics? .......... Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 2 The Market ........................ Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 3 Elasticities ......................... Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 4 Consumer Behaviour ......... Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Module 2 A Closer Look at Supply..... Error! Bookmark not defined. Unit 5 Organization and Costs of a FirmError! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 6 Market Structures—Pure Competition and Pure Monopoly .................. Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 7 Market Structures—Monopolistic Competition and Oligopoly .................... Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 8 Research and development (optional)Error! Bookmark not defined. Module 3 Beyond Markets................... Error! Bookmark not defined. Unit 9 Winners and Losers in The MarketError! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 10 Governments and The MarketError! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 11 Public Choice and TaxationError! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Module 4 The Real Side of the EconomyError! Bookmark not defined. Unit 12 Measuring Features of the Economy Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 13 Modeling Private and Public ExpendituresError! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 14 Modeling the Economy ..... Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 15 Fiscal Policy ...................... Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Module 5 Monetary Policy and other Macroeconomic Issues Error! Bookmark not defined. Unit 16 Monetary Policy ................ Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 17 A look at Inflation and Some ControversiesError! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 18 Economic Growth.............. Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Module 6 International Economics ..... Error! Bookmark not defined. Unit 19 International Trade ............ Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 20 Exchange Rates ................. Error! Bookmark not defined. Useful Practice Questions ........... Error! Bookmark not defined. Unit 21 World Economies .............. Error! Bookmark not defined. Introduction to the Course Have you ever studied economics? No? Then this is the course for you. It is designed to introduce you to the field of economics and to show you how to apply the material you learn to real world situations. This course will familiarize you with the language of economics and will prepare you for selecting higher level courses in the future. Course description The University of Manitoba Undergraduate Calendar describes this course as follows: A study of the principles of economics and some of their applications. Students may not hold credit for ECON 1200 (or 018.120) and any of: ECON 1201 (or 018.120), ECON 1210 (or 018.121), ECON 1211 (or 018.121), ECON 1220 (or 018.122), or ECON 1221 (or 018.122). Course goals Upon completion of this course you will be able to: • explain basic concepts and tools that economists use to address current Canadian and foreign economic and policy issues; • categorize basic economic tools and concepts with respect to a specific area in the field of economics. For example, the theory of the firm is part of microeconomics. This will facilitate your choice of higher level, more specialized courses in economics; • practically apply these tools and concepts to constructed economic problems; and • analyze a variety of economic situations that are discussed in the media. This will require that you select from the available set of concepts and tools those that are most useful for a particular situation. Course materials You will be working with the textbook and the study guide. You may also find some newspaper clippings or other forms of media reports in your assignment package. Required The following required materials are available for purchase from the University of Manitoba Book Store. Please order your materials immediately, if you have not already done so. See your Distance and Online Education Student Handbook for instructions on how to order your materials. Principles of Economics ECON 1200 1 Textbooks McConnell, C. R., Brue, S. L. and Barbiero, T. (2005). Microeconomics, 10th Canadian ed. McGraw-Hill Ryerson. McConnell, C. R., Brue, S. L. and Barbiero, T. (2005). Macroeconomics, 10th Canadian ed. McGraw-Hill Ryerson. Videos Introduction to Economics videotape series. Winnipeg, MB: The University of Manitoba. The videos are purchased through the Book Store. Study guides Walstad, W. B., Bingham, R. C., and Anderson, T. (2005). Study guide for use with Microeconomics, 10th Canadian ed. Walstad, W. B., Bingham, R. C., and Anderson, T. (2005). Study guide for use with Macroeconomics, 10th Canadian ed. The Distance and Online Education Student Handbook The Distance and Online Education Student Handbook is located online in each course site and on the Distance and Online Education website. You can bookmark the site for easy access at your convenience. If you need to order a printed copy, please consult your Distance and Online Education Guide staff directory for the general inquiries contact information. Accessing both the Handbook and the DE Guide throughout the year provides you with detailed information regarding the management/administrative aspects of this distance education course. The Handbook tells you how to access the following: • • • • • • • Your instructor; Writing your final exam at a location other than the University of Manitoba campus; Distance and Online Education Student Services; Using technology (online access, communication tools); The University of Manitoba Libraries; Information on ordering your course materials through the University of Manitoba Book Store; and Information on accessing your grades and submitting assignments online. Going online Interacting with other students Take advantage of communication tools in the course website. The tools include e-mail, discussion, and chat. Post your questions or comments in the discussion area. Activities such as these provide other students with an opportunity to interact with you. Consider creating online study groups. 2 Interacting with your instructor Questions? Concerns? Discussion? Your instructor is prepared to assist you. Do not hesitate to address any concerns regarding the course and assignments directly with your instructor. Check your instructor’s contact information to determine how best to communicate—not all instructors communicate online. Using the libraries Additional readings enrich your learning experience and your understanding of your course topics. Textbooks and course materials often contain suggested reading lists, and you can search any library, using online library search tools, to find these and other related materials. Selected bibliography On occasion you may find it useful to read through sections in other introductory economics textbooks. For the most part you will find that the material presented is the same in all these books. However, different authors use different words and examples to explain the same ideas. You should consult additional books when: • You are having difficulty understanding a particular concept, even though you have read about it in your textbook several times. • You discover that a concept is particularly interesting and you would like to gain additional insight. Colander, D. C. & Sephton, P.S. (1996). Microeconomics. Toronto: Times Mirror Professional Publishing Ltd. Colander, D. C. & Sephton, P.S. (1996). Macroeconomics. Toronto: Times Mirror Professional Publishing Ltd. Parkin, M. & Bade, R. (1997). Microeconomics: Canada in the global environment. Don Mills, ON: Addison-Wesley. Parkin, M. & Bade, R. (1997). Macroeconomics: Canada in the global environment. Don Mills, ON: Addison-Wesley. Vogt, R., Cameron, B. J. & Dolan, E. G. (1993). Economics: Understanding the Canadian economy. Toronto: Dryden. These textbooks are available from the Distance Education Library Service, Elizabeth Dafoe Library at the University of Manitoba. You can obtain them by using the directions provided in your Distance and Online Education Handbook. Principles of Economics ECON 1200 3 Topic overview Microeconomics Module 1 – How Markets Operate Unit Title Content Chapters 1 What is economics - the science of economics - basic economic problem 1, 2 2 The market - consumers - producers - adjustment mechanism 3 Elasticities - price elasticity of demand price elasticity of supply income elasticity of demand cross price elasticity 5 4 Consumer behaviour - investigation of consumer behaviour - in depth analysis of demand 6 3 Module 2 – A closer look at supply Unit Title Content Chapters 5 The typical firm - organization of a firm - costs of a firm 6 Market structures 1 - firm behaviour under pure competition - firm behaviour under pure monopoly 8,9 7 Market structures 2 - firm behaviour under monopolistic competition - firm behaviour under oligopoly 10 Research and Development - R&D in a typical firm 11 8 opt 7 Module 3 – Beyond markets Unit 4 Title Content Chapters 9 Winners and Losers in The Market - 15, 16 10 Governments and The Market - 17 11 Public Choice and Taxation - 18 Macroeconomics Module 4 – The Real Side of the Economy Unit Title Content Chapters 5,6 12 Describing an economy - measuring production levels - measuring unemployment - measuring inflation 13 Modeling private and public expenditures - aggregate expenditure model - when does spending change 7 14 Modeling the economy - aggregate demand - aggregate supply - adjustment mechanisms 8 15 Fiscal Policy - effects of government spending and taxation on the economy 9,10 Module 5- Monetary Policy and other Macro Issues Unit Title Content Chapters 11, 13 16 Monetary Policy - What is money - How the Bank of Canada manages our money - How this affects the economy 17 A look at inflation in the AS-AD model - Economic shocks in the short run and in the long run - The Phillips curve 14 18 Economic Growth - Sources of economic growth - Desirability of economic growth 15 Module 6 – International Economics Unit Title Content Chapters 19 International Trade - Why countries trade - Can there be too much trade? 20 Exchange Rates - Determination of exchange rates - Should government protect our dollar from losing value? Principles of Economics 4.4,16 17 ECON 1200 5 Module 6 – International Economics Unit 21 Title World Economics Content - A brief look outside the Western Capitalist World Chapters Course Manual and Video only Evaluation and grading Students should acquaint themselves with the University’s policy on plagiarism, cheating, and examination impersonation as detailed in the General Academic Regulations and Policy section of the University of Manitoba Undergraduate Calendar. Note: These policies are also located in your Distance and Online Education Student Handbook or refer to Student Affairs at http://www.umanitoba.ca/student. Assignments Principles of Economics is divided into two major parts: microeconomics in the first term and macroeconomics in the second term. During each term you will complete three assignments. Microeconomics is divided into three modules. The first module includes units 1 to 4, the second module includes units 5 to 8, and the third module includes units 9 to 11. At the end of each module you will complete an assignment. Macroeconomics is divided into three modules. The fourth module includes units 12 to 15, the fifth module includes units 16 to 18, and the sixth module includes units 19 and 20. Each assignment will consist of three types of problems. Some will ask you to explain concepts in order to demonstrate your understanding of the concepts; some will ask you to apply specific concepts to constructed problems in order to show that you can use the concepts in a meaningful manner; and some will ask you to analyze real world situations, with the help of concepts covered up to that point, in order to show that you can identify which concepts are useful in which situation. When you are preparing answers to your assignment questions you may proceed in one of the following two manners: • Read the material for one lesson and then complete questions pertaining to that lesson only. Read the material for the following lesson and then complete the questions pertaining to that lesson. - or • Read the material for all the lessons in the assignment and then complete the entire assignment at once. Which option you choose is entirely up to you. You may work through this course in the way that best suits your learning style. 6 Presentation of your assignment Presentation accounts for 10% of the grade on your assignment. To obtain all 10%: • Type your assignment. • Draw your graphs neatly by hand on graphing paper or prepare them on a computer. • Print calculations neatly by hand or use a computer. • Leave some space for your instructor’s comments. Grading percentages Item Value 6 assignments 60% of final mark (each worth 10%) Final exam 40% of final mark Total 100% Course letter grades Grade Value A+ A B+ B C+ C D F 90% - 100% 80% - 89% 76% - 79% 70% - 75% 62% -69% 56% - 61% 50% - 55% 0% - 49% Please note: All final grades are subject to departmental review. Assignment due dates Assignment Module 1 2 3 4 5 6 1 2 3 4 5 6 Sept - April January - July October 15 November 15 December 15 January 15 February 15 March 15 January 21 February 21 March 21 April 21 May 21 June 21 If you need to write the final exam at a location other than the University of Manitoba main campus, you must complete an application. Please consult your Distance and Online Education Student Handbook for directions. Note: If the assignment due date falls on a Saturday, Sunday, or statutory holiday, it will be due on the next working day. If the assignment due date falls during the Mid-term Break in February, it will be due on the Monday following the Mid-term Break. If you are unable to submit an assignment on time, contact your instructor well in advance of the due Principles of Economics ECON 1200 7 date, for we cannot guarantee that the instructor will accept late assignments. Review the guidelines on assignment due dates in the Student Handbook. Working through the course Because this is an independent study course you are required to work on your own. This includes not only reading the material and completing assignments without classroom instruction but also requires you to organize your time well. This is often a challenge, especially if you have not taken a course by distance education before. It is not easy to estimate how much time it will take you to read a section of the course or to complete questions. This section of the manual contains helpful suggestions for scheduling your work effectively. 1. Understanding your textbook A textbook is not meant to be read from beginning to end in one sitting in the way that a novel would be read. You may want to try the following approach instead: • Read through the course outline. • Read the “contents” section of the textbook to see how each chapter correlates to the course logic chart and the course outline. • Familiarize yourself with the style of the textbook. You may find the “To the student” section in your textbook useful for that purpose. 2. Planning your work Plan when you are going to read which chapter and when you will begin completing each assignment so that you can submit all assignments on time. Even if you are not able to stick to your schedule exactly, it will help you to organize your work. You should do this in the first week of the course and update your schedule as you go along. Example: To be read: Assignment 1 Chapters 1-5 (omit chapter 4) Approximately 140 pages To be viewed: Video #1 8 Time: Beginning of term to October 15 Schedule: Sept 8 - Sept 14 Organize my course work Sept 15 - Oct 1 Read the material (see “Reading the material”) Oct 2 - Oct 10 Complete a first draft of the assignment. (See “Completing your assignment”) Oct 10 - Oct 13 Type the assignment and doublecheck the answers Oct 14 Fax the assignment (allow more time if you are mailing) 3. Mastering the material • Flip through the assigned chapters and read the section headings to get an idea of how much reading lies ahead of you. At this point you may also prepare a more detailed schedule for the particular unit(s). • Watch the introductory section of the video that corresponds to the module. It will take no more than 5 minutes. • Read the chapters rapidly to get an idea of which sections are more difficult than others. • Read the chapters more slowly to make sure that you do not miss any details. You may want to take study notes. You can compare the points you highlighted in your notes with those highlighted in the summary at the end of each chapter. • Read the unit(s) in your course manual. • Watch the remainder of the video for the module. It provides you with a summary of the module. • Practice your knowledge by working through problems at the end of the chapter and in your study guide until you feel confident that you have mastered the material. 4. Completing your assignment • Be sure that you understand what the question is asking before you start to write. If you do not read the question carefully you may end up answering something that is not asked and not answering what is asked. If necessary, restate the question in your own words. A good rule of thumb: You really understand something when you are able to explain it to a friend who does not. • You will discover that many questions will ask you to analyze certain situations. Be sure that you do not attempt to answer them with a preconceived notion of what your conclusion should be. Instead, make sure that your conclusion follows from your analysis. • Identify the problem(s) in the question. What is the situation and what would you like to change about it? • Identify the relevant economic tools and concepts that you will be using in your analysis. Outline for yourself the reasoning process. • There may be more than one possible analytical route. Identify alternate routes and explain why you are choosing one route over another. • Clearly state the conclusions that can logically be drawn from your analysis. Often the consistency and logic of your answer is just as important as the conclusion that you reach. Principles of Economics ECON 1200 9 • If there is more than one possible conclusion, state them all. Often there is no right or wrong answer. • Be sure to refrain from assertions of truth or expressions of personal opinions and preferences to support your answer, unless specifically asked to do so. For instance, when asked what you would do to decrease the rate of unemployment in an economy, it is not satisfactory to answer: “I would not do anything because I believe that people should not work. Obviously, work only causes stress and problems in the family.” Final examination The final examination will test you on your knowledge of the entire course. It will be divided into two sections, one covering microeconomics and the other covering macroeconomics. In each section, you will be asked to choose three questions out of five. The format of the questions will resemble the assignment questions. The best preparation for the final exam is to work through all assignments carefully and work through them again once they are returned to you with comments from the instructor. General guidelines for assignment and exam preparation A word of caution about the assignments and the final examination Some students find that they do very well on the assignments, but they do not do nearly as well on the final examination. While your grades on the assignments will give you some idea of how well you are mastering the material, they may not indicate how well you will do on the examination, because the examination is written under very different circumstances. Because the assignments are open book, they do not require the amount of memorization that a closed-book examination requires nor are they limited to a specific time period. Some students have told us that, based on the high marks they received on the assignments, they were overconfident and underestimated the time and effort needed to prepare for the final examination. Please keep all this in mind as you prepare for the examination. If your course has a sample exam or practice questions, use them to practice for the examination by setting a time limit and not having any books available. Pay careful attention to the description of the type of questions that will be on your final examination. Preparing for multiple choice questions involves a different type of studying than preparing for essay questions. Don't underestimate the stress involved in writing a time-limited examination. 10