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HE 9091 Principles of Economics Course Description and Scope This course covers fundamental tools and applications of concepts in microeconomics and macroeconomics. The section on microeconomics focuses on markets as a mechanism for allocating scarce resources. Using tools of welfare economics, it analyses demand, supply, market system and the concepts of elasticity. It also addresses market efficiency, outcomes from market failures, production and firms with market influence. The section on macroeconomics provides a mix of classical and Keynesian ideas, addressing the forces that shape the economy in both the short run and the long run. Topics include the calculation of GDP, analysis of inflation and employment, theory of economic growth, the role of financial markets, fiscal and monetary policies and the international economy. Proposed Lecture Schedule Week No. 1 Topics Lecture 1: Introduction Required Readings FBL Chapters 1, 3 & 6 1.1 Scarcity and Cost-Benefit Principles 1.2 Opportunity Cost and Incentive Principle 1.3 Demand and Supply 1.4 Market Equilibrium and Price Control 1.5 Shifts in Demand and Supply 1.6 Efficiency and Equilibrium Principles 2 Lecture 2: Elasticity and Consumer Behaviour FBL Chapters 4, 5 & 6 2.1 Price Elasticity of Demand 2.2 Income Elasticity of Demand 2.3 Cross-Price Elasticity of Demand 2.4 Price Elasticity of Supply 2.5 Total Utility and Marginal Utility 2.6 The Rational Spending Rule 2.7 Demand and Consumer Surplus 2.8 Supply and Producer Surplus 3 Lecture 3: Perfect Competition and Efficiency 3.1 Perfectly Competitive Markets 3.2 Production and Cost 3.3 Profit and Loss in the Short Run 3.4 Market Equilibrium and Efficiency FBL Chapters 6 & 7 Week No. Topics 3.5 Taxes and Efficiency 3.6 Long Run Adjustment in Perfect Competition Required Readings 4 Lecture 4: Imperfect Competition and Game Theory 4.1 Sources of Market Power 4.2 Profit Maximization for Monopolist 4.3 Price Discrimination 4.4 Game Theory and Strategic Decisions 4.5 Prisoner’s Dilemma 4.6 Decision Tree FBL Chapters 8 & 9 5 Lecture 5: Externalities, Property Rights and Economics of Information 5.1 External Costs and Benefits 5.2 The Coase Theorem 5.3 Property Rights and the Tragedy of the Commons 5.4 Optimal Amount of Information 5.5 Asymmetric Information 5.6 Adverse Selection and Moral Hazard FBL Chapters 10 & 11 6 Lecture 6: Economics of Public Policy 6.1 Economics of Health Care Delivery 6.2 Environmental Regulation 6.3 Public Policy in Pollution Control 6.4 Public Good and Private Good 6.5 Optimal Quantity of Public Good 6.6 Additional Functions of Government and Sources of Inefficiency FBL Chapters 13 & 14 7 Lecture 7: Gross Domestic Product (GDP) and Inflation 7.1 Gross Domestic Product (GDP) 7.2 The Expenditure Method 7.3 Nominal and Real GDP 7.4 Real GDP and Economic Well-Being 7.4 The Consumer Price Index 7.5 Adjusting for Inflation 7.6 Costs of Inflation Recess Lecture 8: Unemployment and Economic Growth 8.1 Demand and Supply in Labour Market 8.2 Measuring Unemployment FBL Chapters 15 & 16 8 9 FBL Chapters 17 & 18 Week No. Topics 8.3 Types of Unemployment 8.4 Impediments to Full Employment 8.5 Economic Growth and Labour productivity 8.6 Determinants of Average Labour Productivity 8.7 Policies to Promote Economic Growth Required Readings 10 Lecture 9: Capital Formation, Financial Markets and Money Supply 9.1 Saving, Wealth and National Saving 9.2 Investment and Capital Formation 9.3 Demand and Supply of Saving 9.4 Bonds and Stocks 9.5 Commercial Banks and Money Creation 9.6 Central Bank and Money Supply 9.7 Money Demand and Money Supply FBL Chapters 19, 20 & 23 11 Lecture 10: Aggregate Expenditure and Stabilization Policy 10.1 Recession and Expansion 10.2 Potential Output and Output Gap 10.3 The Keynesian Model 10.4 Aggregate Expenditure and Multiplier 10.5 Short Run Equilibrium Output 10.6 Fiscal Policy 10.7 Monetary Policy FBL Chapters 21, 22 & 23 12 Lecture 11: Aggregate Demand, Aggregate Supply and Macroeconomic Policy 11.1 The Aggregate Demand Curve 11.2 The Aggregate Supply Curve 11.3 Aggregate Demand-Aggregate Supply Analysis 11.4 Anti-Inflationary Monetary Policy 11.5 Response to Aggregate Demand Shock 11.6 Response to Aggregate Supply Shock NOTE: A Quiz will be conducted during Tutorial 10 Coverage: Lecture 1 to Lecture 10 Format: 20 Multiple Choice Questions to be answered in 40 minutes. FBL Chapter 24 & 25 13 Lecture 12: Exchange Rate, International Trade and Capital Flow 12.1 Exchange Rate Determination 12.2 Flexible and Fixed Exchange Rates FBL Chapter 26 Week No. Topics 12.3 Nominal and Real Exchange Rates 12.4 Purchasing Power Parity Theory 12.5 Trade Balance and Net Capital Inflows 12.6 International Capital Flows Required Readings Basic Text Robert H. Frank and Ben S. Bernanke and Hon-Kwong Liu (FBL) , Principles of Economics Asia Global Edition, McGraw Hill, 2015. ISBN: 978-1-259-01184-9 or M1-259-01184-8 Method of Instruction Lectures Tutorials : : 2 hours per week, commences in Week 1 and end in Week 13 1 hour per week, commences in Week 2 and end in Week 14 Course Assessment Quizzes Class Participation Final Examination Lecturer Dr Tan Khay Boon* * Course Co-ordinator : : : 20% 10% 70% _____ 100% Office Room No. HSS-04-25 DID E-mail Address [email protected]