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Emporia State University School of Business Department of Accounting and Information Systems Syllabus for the Economics section of the Major Field Test All lecture notes are in PDF format, and you will need the free Adobe Acrobat reader to read and print the files. A. Basic Economic Concepts 1. 2. Scarcity and opportunity cost Production possibilities frontier Ten Principles of Economics Lecture Notes Principle 1: People face tradeoffs Principle 2: Opportunity Cost Thinking Like an Economist - The production possibilities frontier 3. Comparative advantage and specialization Interdependence and the Gains from Trade Lecture Notes A Parable for the Modern Economy Production Possibilities Specialization and Trade Comparative Advantage: The Driving Force of Specialization Absolute Advantage Opportunity Cost and Comparative Advantage Comparative Advantage and Trade Applications of Comparative Advantage 4. Economic Systems Ten Principles of Economics Lecture Notes How People Interact Principle 5: Trade Can Make Everyone Better Off Principle 6: Markets Are Usually a Good Way to Organize Economic Activity Principle 7: Governments Can Sometimes Improve Market Outcomes Adam Smith and the Invisible Hand B. Microeconomics 1. Supply and Demand The Market Forces of Supply and Demand Lecture Notes Markets and Competition Competitive Markets Competition: Perfect and Otherwise Demand The Demand Curve Market Demand versus Individual Demand Shifts in the Demand Curve Supply The Supply Curve Market Supply versus Individual Supply Shifts in the Supply Curve Supply and Demand Together Equilibrium Three Steps to Analyzing Changes in Equilibrium How Prices Allocate Resources Supply, Demand, and Government Policies Lecture Notes Controls on Price How Price Ceilings Affect Market Outcomes How Price Floors Affect Market Outcomes Evaluating Price Controls 2. Models of Consumer Choice Elasticity and its Applications Lecture Notes The Elasticity of Demand The Price Elasticity of Demand and Its Determinants Computing the Price Elasticity of Demand The Midpoint Method The Variety of Demand Curves Total Revenue and the Price Elasticity of Demand Elasticity and Total Revenue along a Linear demand Curve Other Demand Elasticities The Income Elasticity of Demand The Cross-Price Elasticity of Demand Three Applications of Supply, Demand, and Elasticity Can Good News for Farming be Bad News for Farmers Why did OPEC Fail to Keep the Price of Oil High Does Drug Interdiction Increase or Decrease Drug-Related Crime Consumers, Producers, and the Efficiency of Markets Lecture Notes Consumer Surplus Willingness to Pay Using Demand Curve to Measure Consumer Surplus How a Lower Price Raises Consumer Surplus What Does Consumer Surplus Measure Producer Surplus Cost and Willingness to Sell Using the Supply Curve to Measure Producer Surplus How a Higher Price Raises Producer Surplus Market Efficiency The Benevolent Social Planner Evaluating the Market Equilibrium Market Efficiency and Market Failure 3. Production and Costs The Costs of Production Lecture Notes What are Costs? Total Revenue, Total Cost, and Profit Costs as Opportunity Costs The Cost of Capital as Opportunity Cost Economic Profit versus Accounting Profit Production and Costs The Production Function From the Production Function to the Total Cost Curve The Various Measures of Cost Fixed and Variable Cost Average and Marginal Cost Cost Curves and Their Shapes Typical Cost Curves Costs in the Short Run and the Long Run The Relationship between Short-Run and the Long-Run Average Total Cost Economies and Diseconomies of Scale 4. Product Market Structures Firms in Competitive Markets Lecture Notes What is a Competitive Market? The Meaning of Competition The Revenue of a Competitive Firm Profit Maximization and the Competitive Firm’s Supply Curve A Simple Example of Profit Maximization The Marginal Cost Curve and the Firm’s Supply Decision The Firm’s Short Run Decision to Shut Down The Firm’s Long Run Decision to Enter or Exit the Market Measuring Profit in Our Graph for the Competitive Firm The Supply Curve in a Competitive Market The Short Run: Market Supply with a Fixed Number of Firms The Long Run: Market Supply with Entry and Exit Why do Competitive Firms Stay in Business If They Make Zero Profit A Shift in Demand in the Short Run and Long Run Monopoly Lecture Notes Why Monopolies Arise Monopoly Resources Government Created Monopolies Natural Monopolies How Monopolies Make Production and Pricing Decisions Monopoly versus Competition A Monopoly’s Revenue Profit Maximization A Monopoly’s Profit Monopoly Drugs versus Generic Drugs The Welfare Cost of Monopoly The Deadweight Loss The Monopoly’s Profit: A Social Cost Public Policy toward Monopolies Increasing Competition with Antitrust Laws Regulation Public Ownership Doing Nothing Price Discrimination A Parable about Pricing The Moral of the Story The Analytics of Price Discrimination Examples of Price Discrimination Oligopoly Lecture Notes Between Monopoly and Perfect Competition Markets with Only a Few Sellers A Duopoly Example Competition, Monopolies and Cartels The Equilibrium for an Oligopoly How the Size of an Oligopoly Affects the Market Outcome Case Study: OPEC and the World Oil Market Game Theory and the Economics of Cooperation Oligopolies as a Prisoners’ Dilemma Other Examples of the Prisoners’ Dilemma The Prisoners’ Dilemma and the Welfare of Society Why People Sometimes Cooperate Public Policy toward Oligopolies Restraint of Trade and Antitrust Laws Controversies over Antitrust Policies Monopolistic Competition Lecture Notes Competition with Differentiated Products The Monopolistically Competitive Firm in the Short Run The Long Run Equilibrium Monopolistic versus Perfect Competition Advertising The Debate over Advertising Advertising as a Signal of Quality Brand Names 5. Resource Markets The Markets for Factors of Production Lecture Notes The Demand for Labor The Competitive Profit maximizing Firm The Production Function and the Marginal Product of Labor The Value of Marginal Product and the Demand for Labor What Causes the Labor Demand Curve to Shift The Supply of Labor The Trade-off Between Work and Leisure What Causes the Labor Supply Curve to Shift Equilibrium in the Labor Market Shifts in Labor Supply Shifts in Labor Demand 6. Market Failure and the Role of Government Externalities Lecture Notes Externalities and Market Efficiency Welfare Economics: A Recap Negative Externalities Positive Externalities Technology Spillovers, Industrial Policy, and Patent Protection Private Solutions to Externalities The Types of Private Solutions The Coase Theorem Why Private Solutions Do Not Always Work Public Policies toward Externalities Command and Control Policies: Regulation Market Based Policy 1: Corrective Taxes and Subsidies Market Based Poliicy 2: Tradeable Pollution Permits Objections to the Economic Analysis of Pollution Public Goods and Common Resources Lecture Notes The Different Kinds of Goods Public Goods The Free Rider Problem Some Important Public Goods The Difficult Job of Cost-Benefit Analysis Common Resources The Tragedy of the Commons Some Important Common Resources Conclusion: The Importance of Property Rights C. Macroeconomics 1. Measurement of Economic Performance Measuring a Nation’s Income Lecture Notes - The Economy’s Income and Expenditure - The Measurement of Gross Domestic Product - The Components of GDP - Real versus Nominal GDP A Numerical Example; The GDP Deflator - GDP and Economic Well-Being Measuring the Cost of Living Lecture Notes The Consumer Price Index How the Consumer Price Index Is Calculated Problems in Measuring the Cost of Living The GDP Deflator versus the Consumer Price Index Correcting Economic Variables for the Effects of Inflation Dollar Figures from Different Times Indexation Real and Nominal Interest Rates Unemployment and Its Natural Rate Lecture Notes Identifying Unemployment How is Unemployment Measured Does the Unemployment Rate Measure What We Want It to How Long Are the Unemployed Without Work Why Are There Always Some People Unemployed Job Search Why Some Frictional Unemployment is Inevitable Public Policy and Job Search Unemployment Insurance Minimum Wage Laws Unions and Collective Bargaining The Economics of Unions Are Unions Good or Bad for the Economy The Theory of Efficiency Wages Worker Health; Worker Turnover; Worker Effort; Worker Quality 2. Aggregate Demand and Aggregate Supply 4. Monetary Policy and Fiscal Policy Aggregate Demand and Aggregate Supply Lecture Notes Three Key Facts about Economic Fluctuations Fact 1: Economic Fluctuations Are Irregular and Unpredictable Fact 2: Most Macroeconomic Quantities Fluctuate Together Fact 3: As Output Falls, Unemployment Rises Explaining Short-Run Economic Fluctuations The Assumptions of Classical Economics The Reality of Short-Run Fluctuations The Model of Aggregate Demand and Aggregate Supply The Aggregate-Demand Curve Why the Aggregate-Demand Curve Slopes Downward Why the Aggregate-Demand Curve Might Shift The Aggregate-Supply Curve Why the Aggregate-Supply Curve Is Vertical in the Long Run Why the Long-Run Aggregate-Supply Curve Might Shift Using AD and AS to Depict Long Run Growth and Inflation Why the Aggregate-Supply Curve Slopes Upward in the Short Run Why the Aggregate Supply Curve Might Shift Two Causes of Economic Fluctuations The Effects of a Shift in Aggregate Demand The Effects of a Shift in Aggregate Suppy Money Growth and Inflation Lecture Notes The Classical Theory of Inflation The Level of Prices and the Value of Money Money Supply, Money Demand, and Monetary Equilibrium The Effects of a Monetary Injection A Brief Look at the Adjustment Process The Classical Dichotomy and Monetary Neutrality The Inflation Tax The Fisher Effect The Costs of Inflation A Fall in Purchasing Power? The Inflation Fallacy Shoeleather Costs Menu Costs Relative Price Variability and the Misallocation of Resources Inflation-Induced Tax Distortions Confusion and Inconvenience A Special Case of Unexpected Inflation: Arbitrary Redistributions of Wealth 3. Money and the Banking System The Monetary System Lecture Notes The Meaning of Money The Functions of Money; The Kinds of Money Money in the U.S. Economy The Federal Reserve System The Fed’s Organization The Federal Open Market Committee Banks and the Money Supply The Simple case of 100-Percent Reserve Banking Money Creation with Fractional Reserve Banking The Money Multiplier The Fed’s Tools of Monetary Control Problems in Controlling the Money Supply: 5. Economic Growth Production and Growth Lecture Notes Economic Growth around the World Productivity: Its Role and Determinants Why Productivity is so Important How Productivity is Determined Economic Growth and Public Policy The Importance of Saving and Investment Diminishing Returns and the Catch Up Effect Investment from Abroad Education Property Rights and Political Stability Free Trade Research and Development Population Growth D. International Economics 1. International Trade and Policy Application: International Trade Lecture Notes The Determinants of Trade The Equilibrium without Trade The World Price and Comparative Advantage The Winners and Losers from Trade The Gains and Losses of an Exporting Country The Gains and Losses of an Importing Country The Effects of a Tariff The Effects of an Import Quota The Arguments for Restricting Trade Trade Agreements and the World Trade Organization 2. Exchange Rates 3. Balance of Payments Open-Economy Macroeconomics: Basic Concepts Lecture Notes The International Flows of Goods and Capital The Flow of Goods: Exports, Imports, and Net Exports The Flow of Financial Resources: Net Capital Outflow The Equality of Net Exports and Net Capital Outflow Saving, Investment, and Their Relationship to the International Flows The Prices for International Transactions: Real and Nominal Exchange Rates Nominal Exchange Rates The Real Exchange Rate First Theory of Exchange-Rate Determination: Purchasing-Power Parity The Basic Logic of Purchasing-Power Parity Implications of Purchasing-Power Parity Limitations of Purchasing-Power Parity Suggested Textbook: Brief Principles of Macroeconomics (4th ed.) by N. Gregory Mankiw Principles of Microeconomics (4th ed.) by N. Gregory Mankiw Published by Thomson/Southwestern Any principles of economics textbook may be used to prepare for the Major Field Test, the two mentioned above are used at ESU. Web Site for Practice Questions http://websites.swlearning.com/cgiwadsworth/course_products_wp.pl?fid=M20b&product_isbn_issn=0324319169&discipline_number =413 (for Microeconomics) http://websites.swlearning.com/cgiwadsworth/course_products_wp.pl?fid=M20b&product_isbn_issn=0324236972&discipline_number =413 (for Macroeconomics and International trade) On each website there is a window near the top of the screen where you have to select the chapter number. Once you have done this, there is a list of buttons on the left hand side of the screen. Click on the button for “Tutorial Quiz.” At the end of the quiz you will be asked to enter the email address of an instructor (this can be left blank) and your email (you should enter your email address here so that you have a copy of your answers for review). Since there are a number of topics common to Microeconomics and Macroeconomics, some of the topics listed on these two websites, and the questions, will be the same.
