Download ECON 3070-003 Intermediate Microeconomic Theory

r
.(
ECONOMICS 3070-Spring 1995
PROFESSOR J. KRUSE
Office Hours: 3:30-4:30 p.m. MW
INTERMEDIATE MICROECONOMIC THEORY
Office: Econ 11
Phone: 492-8736
Prerequisite: Math 107, 108
Time: 11:00-11 :50 MW F
or equivalent
Place: Econ 117
Required text: Intermediate Microeconomics, A Modern Approach
Third Edition, by Hal R. Varian
The goal of this course is to prepare you with the needed foundation in microeconomic theory to
understand the underlying assumptions, strengths and weaknesses of the theories used in your upper
division applied courses. In presenting this material to you the instructor recognizes that differences in
cultural background may lead to different learning styles. Consequently the material and intuition will
be presented in a variety of ways to give all students an opportunity learn this important foundation
material.
Grading Policy: Each student's course grade for Economics 3070 will be determined using the following
basis:
Midterm 1
Midterm 2
Final(Comprehensive)
Class activity
100 points
100 points
? (60 to 170) points
50 points
Class activity includes announced quizzes and homework assignments, unannounced in-class markets and
assigned in-class presentations. If you accumulate 35 % or less of the total possible activity score, you
will receive O class activity points. For every 1 % above 25, you get 1 point up to a maximum of 50
points (85 % of the possible activity score)
Minimum Percentage for each letter grade: The following table lists the minimum percentage score
necessary to achieve each letter grade. I will not raise the minimum, but do reserve the right to lower
the minimum requirements .
Grade Percentage
A
92%
76%
c+
70%
A90%
c
68%
B+
88%
C60%
D
B
80%
B78%
Make-up Exams: Each student is expected to take all of the exams and quizzes at the designated time
and place. Students who miss any exam without a university accepted excuse will receive a grade of zero
for the missed exam. MAKE UP EXAMS WILL NOT BE GIVEN. The final exam will assume all
point values of exams that were missed with a university accepted excuse. A make-up exam will be given
to those students who miss the final exam and do have a university-accepted excuse.
Students who miss an exam must provide a signed statement explaining the reason why they missed
the exam within one week of the exam. Otherwise, a zero will be awarded .
Important dates :
3-3-95(Friday)
EXAM!
4-21-95(Friday)
EXAM II
5-4-95(Thursday)
12:00 noon to 2:00 p.m. FINAL EXAM (comprehensive)
Schedule of Exams and Class Activities
Date
point value
description
1I 11
10*
*Extra Activity Credit-Old outcomes assessment multiple choice test.
1/18
10
#1 Homework-Solve linear demand and supply for competitive
equilibrium, Calculate Consumer Surplus, Producer Surplus, Total
Surplus. Plus spreadsheet assignment.
1/20
10
#2 In Class Market-Double Auction with tax on buyers or sellers.
1/23
10
#3 Draft-Analysis of current or proposed tax.
1/25
10
#4 Comments on classmates ' draft papers
l/27
10
#5 Final Version of paper
2/3
10
#6 Homework-Using demand function and calculate elasticities. Use
spreadsheet to calculate range of elasticities for a linear demand function.
2/10
10
#7 Quiz-Budget Line and Preferences (Ch 2,3 & 4)
2/1 7
10
#8 Homework-Graphical Slutsky decomposition and Algebraic Slutsky
decomposition
2/24
10
#9 Quiz-Labor Leisure Model, Intertemporal Choice, and Expected
Utility (Ch 9.8 , 10 & 12)
2/27
10
#10 In cl ass market-Lottery tickets
3/3
Exam !-(Covers Parts I and II of Course Outline)
3/10
10
#11 Homework-Evaluating Returns to Scale alegraically and using a
spreadsheet
3/13-20
10
#12 In class market-Group firm decision
4/7
10
#13 Homework-Compare the competitive equilibrium with the monopoly
from the stand point of the firm and the standpoint of society.
4/12
10
#14 Quiz-Edgeworth Box and Walrasian Equilibrium
4/21
5/1
5/4
Exam 11-(Covers Parts III and IV of Course Outline)
10
#15 Homework-Your opinion of what things would improve the class .
FINAL EXAM 12 noon to 2 p.m. The weight of the final is up to you.
You can choose a weight from 20 % to 40 % of your grade.
Course Outline for Econ 3070-Prof. Kruse
I.
Introduction - The Competitive Equilibrium Model1
wkl
A.
Demand, Supply and Competitive Equilibrium
1.
The Meaning of Equilibrium (l.1-1.6, 1.11, Math Appendix A . l-A.10)
2.
Solving Linear Demand and Supply Functions for Competitive Equilibrium (16.1-
16.5)
3.
Gains from trade: Consumer Surplus, Producer Surplus (14, 21.7)
wk2
B.
Taxes , Subsidies and Competitive Equilibrium (16.6)
1.
Introducing a Tax to the Competitive Equilibrium Model - Graphically
2.
Incidence of a Tax: Comparison of a Tax on Consumers v. Tax on Producer.
3.
Welfare Effects of a Tax (16.6-16.8)
wk3
C.
Elasticity Measures (15 .5-15. 8)
1.
ARC Formula and Point Formula
2.
Income Elasticity
3.
Own Price Elasticity
4.
Cross Price Elasticity
II.
Consumer Choice Theory
wk4
A.
Introduction to the Consumer Choice Problem
1.
The Subjective Side: Consumer Tastes
2.
The Objective Side: Prices and Income
3.
The Idea of the Consumption Space
Two good Case
a.
N good Case
b.
B.
The Budget Set (Ch 2)
1. Defining the Affordable Set
2.
Geometry of the Budget Line
a.
Intercepts
b.
Slope
3.
Effect of Income and Price Changes
4. Taxes, Subsidies and Rationing
Preferences and the Utility Function
1.
Preference Theory-The Five Basic Assumptions (Axioms) (Ch 3)
2.
Indifference Curves and the Five Axioms
a.
Marginal Rate of Substitution
b.
Perfect Substitutes , Perfects Complements
3.
Representation of Preferences with a Utility Function (Ch 4)
a.
Marginal Utility
b.
Relationship Between MRS and the Marginal Utilities
c.
Utility functions that represent perfect complements , perfect substitutes,
quasilinear preferences, Cobb-Douglas preferences.
c.
wk5
1
Book sections listed in parentheses are for Varian
D.
Optimal Choice (Ch 5)
1.
Identifying the Optimal Choice Using the Budget Line and Indifference Curves
2.
Comparative Statics on Optimal Choice (Ch 6)
a.
Income Expansion Path and Engel Curve
b.
Price Offer Curve and Demand Curve
c.
Normal and Inferior Goods
3.
Slutsky Decomposition of a Price Change (Ch 8)
a.
Substitution Effect & Income Effect
b.
Normal, Inferior and Giffen Goods
c.
Hicksian Decompos ition v. Slutsky
d.
Algebraic Slutsky Decomposition
wk7
E.
Consumption from an Endowment (Ch 9)
1.
Budget Line
2.
Net Demands
3.
Price Offer Curve
4.
Applications:
a.
Labor-Leisure Model (9.8)
b.
Intertemporal Choice (Ch 10)
i. present value and discounting
wk8
F.
Expected Utility (Ch 12)
1.
Probabilities and Expected Value
2.
Risk and Expected Utility
3.
Application: Lottery Tickets and Insurance
wk6
EXAM I-MARCH 3
lll.
Theory of the Firm and Market Structure
wk9
A.
The Production Function (Ch 17)
1.
Assumptions
SR v LR
2.
3.
Marginal Product
4.
Isoquants
5.
Returns to Scale
wklO
B.
Profit Maximization (Ch 18)
1.
Short Run
2.
Long Run
3.
Factor Demand Curves
wkl 1
C.
Cost Minimization and the Cost Function (Ch 19)
Short Run
1.
2.
Long Run
3.
The Total and Average Cost Curves (Ch 20)
D.
Competitive Profit Maximization and Supply (Ch 21)
I.
Firm Supply
2.
Industry Supply (Ch 22)
3.
Economic Rents
2
r
wkl3
E.
Monopoly (Ch 23)
1.
Market Power
2.
Profit Maximization of the Monopolist
3.
Welfare Effects of Monopoly v. Competition (23.5, 16.9)
F.
Oligopoly (Ch 26)
1.
Cournot Model (26.6)
2.
Bertrand Model (26.9)
3.
Collusion (26.10)
4.
Regulation and Antitrust
IV.
General Equilibrium and Welfare Economics
wk14
A.
Introduction to General Equilibrium without Production (Ch 28)
1.
Two persons with endowments
2.
Edgeworth Box
3.
Walrasian Equilibrium
wk15
B.
Welfare Implications of Competitive Equilibrium
1.
Introduction to Social Welfare (Ch 30)
2.
Connection between Maximizing Gains from Trade and Pareto Efficiency (16.9)
3.
Externalities and Public Goods (Ch 31 and 33)
EXAM II APRIL 21, 1995
wk 16, 17
Review
F1NAL EXAM MAY 4, 1995 12 NOON TO 2 P .M .
3
ECON 3070 Prof. Kruse-Homework #I-due January 13, 1995
Part I
For demand represented by the function, Q= 1000-5P, and supply represented by the function, Q=P-200,
a) Solve for competitive equilibrium price and quantity.
b) Plot the demand and supply curves, noting all horizontal and vertical intercepts, the slope of each
curve and the equilibrium price and quantity.
c) Calculate consumer surplus, producer surplus and total surplus at competitive equilibrium.
Part II
Use any spreadsheet software that you wish to:
Construct and Print the demand schedule AND the graph for
P= 500 - (l/2)Q 3 ie 500- 0.5*Q... 3 for q= 1 through 10.
The following is a very detailed exercise to help you get started on a spreadsheet (Quatro Pro) and
construct and print a demand schedule and its graph.
I. Turn on computer -switch is on backside of cpu (box)
& monitor
-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 010 (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 "I" and use arrow key to move to AS .
11. At A5 type "+" then move the cursor to A4, then another "+" and "1" 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
AS 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 AS .. 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: BS ..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 A 1.. 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
LINE
SERIES
X AXIS
x axis labels block: A4 .. A 17 enter
lST SERIES
1st series block: B4 .. B 17 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
To Exit, choose FILE, EXIT, yes