Download ECON 3070-003 Intermediate Microeconomic Theory

INTERMEDIATE MICROECONOMICS
Econ 3070-3
Sec. 1
Spring 1994
Room: Econ 119
Professor de Bartolome
Office Hours:
Office: Econ 202.
Textbook:
Schotter, A. , (1994), Microeconomics: A Modern Approach. Harper Collins.
Study Guide: Nyarko, Y., (1994), Study Guide for Microeconomics, a Modern Approach. Harper
Collins ..
Course description: Microeconomics is about what goods get produced and sold at what prices. The
course builds on the Principles of Microeconomics (Econ 2010-4), doing the material at a more
advanced level and stressing strategic issues . Game theory is introduced and the characteristics which
determine industrial structure are explored.
The presentation of the course is at the intermediate level. It is required that the student has
passed Principles of Microeconomics (Econ 2010-4) and MATH 1050, 1060, 1070, 1080, 1090 and
1100.
Grading : the student's grade will be principally determined by his/her performance in the three exams.
A small percentage of the final grade will be determined by performance in a game, and by some data
collection exercises to be given out in class.
Course outline:
Date
Topic
Chapter
Aug 25.
INTRODUCTION
Normative and positive economics.
Economic institutions.
The state.
Property rights: the problem of the commons .
1
Aug 30,
Sept 1.
CONSUMER PREFERENCES
Consumption possibility set:
- convexity.
Consumer preferences:
- complete, reflexive, transitive.
- continuity.
- non-satiation.
- convexity.
- indifference curves.
Utility :
- additive separability.
- cardinal and ordinal.
Marginal Rate of Substitution.
"Marginal rate of substitution = price" rule.
2
Sept 6, 8.
EXCHANGE
Feasible trades: Edgeworth Box.
4
Gains from trade.
Blocking trades.
Pareto-efficiency:
- "equal marginal rate of substitution" rule.
- contract curve.
Core.
Replication and the shrinking core.
Competitive behavior.
Competitive equilibrium.
Sept 13, 15.
CONSUMER DEMAND .
3
Individual consumer demand.
omit Sections 3 .12, 3 .15
- income expansion path.
3.18 and pp. 103-108
- inferior and superior goods .
- price-consumption paths.
- non-convex preferences and demand .
- income and substitution effects.
- normal goods and downward sloping demand curves .
- price elasticities.
- budget exhaustion.
Market demand.
Consumer surplus .
Sept 20, 22.
PRODUCTION
Production process.
Labor-capital ratio.
Production set:
- no free production.
- non-reversibility.
- free disposal.
- additivity.
- divisibility.
- convexity.
- isoquants.
Production function.
Marginal rate of technical substitution.
Marginal product.
Returns to scale.
Elasticity of substitution.
Short-run and long-run production functions.
Sept 27.
EXAM.
5
r
.. .
Sept. 29,
Oct 4, 6.
COST. FUNCTIONS
Cost functions .
- isocost curves.
- "marginal rate of technical substitution
= factor price ratio" rule.
Leontief production function.
Cobb Douglas production function .
Short-run and long-run.
Marginal cost functions .
Average cost functions.
Oct 11 , 13, 18.
STRATEGIC ANALYSIS
Extensive Form.
Information sets.
Strategy.
Normal Form.
Non-cooperative games.
Nash equilibrium.
Dominant strategies.
Prisoner's Dilemma.
Credible threats.
Subgame perfect equilibria.
Backward induction.
Oct 20, 25 .
FIRM 'S ORGANIZATIONAL STRUCTURE
General and specific inputs .
Moral hazard.
Efficiency wage.
Revenue-sharing.
Forcing contracts.
Economic tournaments.
8
Oct 27 .
MONOPOLY
Arbitrage pricing.
Marginal revenue curve.
Inverse demand function.
"Marginal revenue = marginal cost" rule.
Social inefficiency: deadweight loss .
9
Nov 1.
EXAM.
6
7
omit p. 219-224, and
Appendices A and B.
Nov 3, 8.
MONOPOLY (cont.)
Socially optimal single price.
Two-part tariff.
Price discrimination in segmented markets .
Nov 10, 15.
REGULATION.
Natural monopoly.
Sustainable monopoly.
Contestable markets.
Rate of return regulation.
Price-cap.
Nov 17, 22.
OLIGOPOLY
Reaction functions.
Coumot Model.
Welfare properties of duopolistic markets.
Bertrand model.
Collusive duopoly.
Kinked demand curve.
Collusive equilibrium in Bertrand supergame.
Nov 29 .
MARKET ENTRY
Perfect competition as a sequence of successful entries.
12.5
Dec 1.
PERFECTLY COMPETITIVE MARKETS
Short-run supply of individual firm .
Market supply .
Equilibrium.
Experimental evidence: double oral auctions.
Long-run equilibrium.
Dynamic changes .
Why are long-run competitive equilibria so good?
13
Dec 6.
FREE MARKET AND INTERVENTIONIST IDEOLOGIES
First Fundamental Welfare Theorem.
Second Fundamental Welfare Theorem.
Income redistribution:
- Bentham's and Rawl' s argument.
- Nozick's rebuttal.
Market failure.
15
9
10
omit Section 10.4,
and Appendices A,B.
11
omit Sections 11.3, 11.8.
(
Getting Started on a speadsheet (Quatro Pro)
1. Tum on computer
& monitor
-switch is on backside of cpu (box)
-switch is on right hand side of monitor
2. press any key when instructed until you get to the MAIN MENU
3. Use mouse or arrow keys to highlight Applications, press enter
4. highlight Quatro Pro, press enter
use quatro pro command set, press enter
5. You will get a blue screen with command bar across the top
Each square (cell) has an address such as Al (1st column, 1st row) or DlO (4th column,
10th row) You can type words, numbers, or formulas into these.
6. We will go through using an inverse demand function to generate a demand schedule, and
graph. example: P=200-Q2•
7. At Al, type "Example Inverse Demand" and enter.
8. Move to A3, type "Quantity" and enter
9. Move to B3, type "Price" and enter
10. Move to A4, type "l" and use arrow key to move to A5 .
11. At A5 type "+" then move the cursor to A4, then another "+" and "l" and enter. (You've
just created a formula which says "take the number in the cell above this one and add 1 to it" .
Notice that A5 has a 2 in it but the black line says + A4+ 1.
12. Now copy the formula down. by using the mouse or"/ " to get to the red command bar.
Choose
EDIT, and enter
COPY, and enter
-the black box says-source block of cells: A5 .. A5 press enter or if it doesn't say A5 .. A5
press esc and type it in.
-the black box says-destination for cells:
type A6 . . A20 or highlight the cells and press enter
13. Now move the cursor to B4. You want the spreadsheet to calculate the price that
corresponds with Q = 1 for your demand function so you type, +200-A4"''2 and enter.
14. Now copy the formula down:
EDIT
COPY
Source Block: B4 .. B4
Destination Block: B5 .. B20
15. Notice that some of the prices are negative so they are outside of the range we are
considering so erase them so erase them,
EDIT
ERASE BLOCK
Block to be modified: A18 .. B20 enter
If you want to print your demand schedule, choose
Print
Block
the block of the spreadsheet to print, type Al .. C20 enter
then choose
SPREADSHEET PRINT
It will print on the EPSON printer, if you want to print on the laser printer, choose
OPTIONS
HARDWARE
PRINTERS
DEFAULT PRINTER
SECOND PRINTER
QUIT twice. Now when you print it will come out on the HP laser printer
If you want to graph your demand schedule, choose,
GRAPH
GRAPH TYPE
LlNE
SERIES
XAXIS
x axis labels block: A4 .. Al 7 enter
lST SERIES
1st series block: B4.. Bl 7 enter
Quit, then from the Graph Menu choose VIEW
Press enter again when you are done admiring your work. You can add labels to the axes and
a title by using the TEXT option on the GRAPH menu
To print your graph, get out to the main menu and choose
PRINT
GRAPH PRINT
GO
Assignment due Friday January 21, 1994:
Construct and Print the demand schedule the graph for
P= 500 - (l/2)Q' ie 500- 0.5*QA3 for q= 1 through 10.
To Exit, choose FILE, EXIT, yes
Example Inverse Demand
180
1EiO -------------------------------------------- ----------------------------------------------------------------
1'4-0 -------------------------------------------------------- ---------------------------------------------------120 ---------------····---····--------·-······························ ····················--------···--·········
Cl)
-~
100 -------------------------------------------------------------------------0..
80 ---------------·----------------------------------------------------------------EiO ---------·---------------·-··--------------------------------------------------------·--- ---------·----------
'4-0 -------------·-·-----------------··--·---·---------------------------------------------------·- -·-----------·
20 ---------------------·---------------------------------------------------------------------·--·------
o...._~~~~-.-~. . . . . ~--,-~---~__,,~--.~~...-~...-~--~~~....-~---~
1
2
3
5
7
8
Quantity
9
10
11
12 13