Economics 8100
Applied Microeconomic Analysis
Spring 2002
Bruce A. Seaman, Ph.D.
LOGISTICS: Time: MW, 5:30-6:45 P.M.; Room 600 General Classroom; Comp #5143; Office: 636 CBA; Office phone: 404-651-2775; e-mail: or at home, . Office fax: 404-651-4985
CATALOG DESCRIPTION: This course provides comprehensive coverage of microeconomic topics by analyzing the applications of the theory. A graphical and intuitive approach is stressed in addition to the mathematical. Topics include both the standard and the new consumer theory, production and cost analysis, modern theories of the firm and markets, and basic welfare economics. Applications useful to business students are also provided.
PREREQUISITES: Econ 3910 or MBA 8403 (intermediate micro theory, or MBA micro); and Econ 6030 or Dsc 8040 (basic calculus and algebra).
TEXTS: Robert H. Frank, Microeconomics and Behavior, Fourth Edition, McGraw-Hill, 1999. Designated "F" in the reading assignments.
Note: From the Preface, page xxviii, you will note the website address for this text from which you can access appendices and the answers to all end of the chapter problems (accessible from the instructor's manual when you use "frank00" with password "instructor" - all lower case).
Walter Nicholson, Microeconomic Theory: Basic Principles and Extensions, Seventh Edition, Dryden, 1998. Designated "N" in the reading assignments.
ADDITIONAL MATERIALS: A few carefully selected journal articles will be assigned to exhibit particular theoretical tools of analysis as they are actually used by researchers (distributed or available electronically via JSTOR). An effort will be made to balance these by "business field" to exhibit the contributions of economics to the various related disciplines.
Sample exams will be posted on my web page (most easily accessed via the Andrew Young School homepage via the Apeople” link) and/or on WebCT and will serve as problem sets and occasional discussion topics during class. Answers to selected end of chapter questions are provided in the Nicholson text. For the Frank text, end-of-chapter problem solutions are available on his web page using a password, as noted above. NOTE: Various handouts and Asupplemental lectures@ will be posted on WebCt. It is important that you ensure that you can access Econ 8100 via WebCt since it is often used for announcements and supplemental postings.
1
IMPORTANT UNIVERSITY POLICY STATEMENT: The instructor is required to report any student who has ceased to attend class and give that student a WF (withdrawal failing) as of a date approximately at the mid-point of the semester. Any such student receiving financial aid may be required to refund any financial support. Therefore any student who for legitimate reasons (illness, family crises etc.) must be absent from class for any period of time exceeding 2 classes is strongly advised to inform the instructor in advance.
COURSE PHILOSOPHY: Pedagogically, this course follows the same philosophy that has led to University of Chicago related scholars receiving about 30% of the Nobel Prizes in Economics. It is best stated as follows:
"The course tries to present a rigorous and systematic statement of the principles economists have developed to understand the allocation of resources. The emphasis, however, has been on the value of these principles in understanding the world about us. (And) the most efficient way to learn economic theory is to solve the many problems that test one's understanding."
Gary Becker (Nobel Prize 1992), from the Preface to his Economic Theory, Alfred A. Knopf, 1971.
"These days a book in microeconomics cannot contain a single derivative, or even very many equations, yet send the message that the form of economics is its scientific substance. The students learn economic calculus before they learn to reason economically, and their capacity for reasoning is permanently damaged. The point is not to banish formal training from economics, but to place it at the right stage of the educational process."
Deirdre McCloskey (Univ. of Illinois; formerly of the University of Chicago and the University of Iowa) from the Preface of her text cited above.
"I wrote Microeconomics and Behavior in the conviction that the teaching of intuition and the teaching of technical tools are complements, not substitutes. Students who learn only technical tools rarely seem to develop any real affection for our discipline, and even more rarely do they acquire that distinctive mindset we call 'thinking like an economist.' By contrast, students who develop economic intuition are stimulated to think more deeply about the technical tools they learn and to find more interesting ways to apply them. Most important, they usually end up liking economics."
Robert Frank (Cornell Univ.; Ph.D. UCLA), from the Preface of the text, exhibiting the perspective of one lucky enough to be educated by that "classic" text of non-technical rigor, University Economics, by UCLA professors Armen A. Alchian and William R. Allen, Wadsworth, 1967.
"In almost anyone else's hands, this model would have got bogged down in a mathematical morass of matrix inverses and fixed points. It needed Krugman's deeper understanding of the problem to cut it down to its essentials and express the argument in simple diagrams. As he himself says, 'often the truest sophistication is finding a way to express novel ideas with no more than a diagram or a numerical example.'"
Avinash Dixit praising the 1991 John Bates Clark Medal winner, Paul Krugman, (in particular some of his work on strategic trade theory), Journal of Economic Perspectives, Spring 1993, p. 182.
1
COURSE REQUIREMENTS: Two take-home exams are planned, including the take-home final exam due Monday, May 6 at noon (distributed the last day of class, April 29). There is a slight chance that a shorter 2nd exam will be given prior to the final exam. The midterm exam is planned for distribution Feb. 20, and is due the following Monday, Feb. 25 at the beginning of class. Note that the exams are not formally comprehensive, but focus on new topics. Assigned problems should be completed to prepare for the exams, but will not be graded. Class discussion is encouraged. Classes are missed strictly at your own risk, given the supplemental material to be presented and the problems to be discussed.
OFFICE HOURS: Appointments are easily made; The best "walk-in" times are apt to be MW before, but it is always best to call first.
COURSE SCHEDULE: (Problems will be assigned separately); March 11 is the last day to withdraw and receive a "W."
DATES TOPICS AND ASSIGNED READING (Includes Appendices unless excluded - Frank Appendices are at designated website)
1/7: Introduction/Background/Logistics.
1/9: The core concepts of microtheory; initial applications
F: Chs 1 and 2
N: Ch. 1
1/14: Supply and demand and initial applications; math review
F: Ch. 2
N: Review Ch. 2 as basic math background (focus on basic differentiation and optimization techniques)
1/16: Finish supply and demand applications; initial sample exam problems; Begin constrained optimization analysis
F: Ch. 3
N: Ch. 3
1/21: No Class; Martin Luther King, Jr. Holiday
1/23: Constrained optimization and choice theory: extensions and applications; links to demand and elasticity
F: Chs 4 and 5
N: Chs. 4 and 5
1
1/28: Further applications of choice theory: public policy issues; inter-temporal choice; Relationships among elasticities; The Slutsky equations
F: Ch. 5
N: Chs. 6 and 7
1/30: Clarification of the Slutsky equation and consumer surplus
N: Chs. 6 and 7 continued
Excerpts from Hal R. Varian, Intermediate Microeconomics: A ModernApproach, Fifth Edition, W.W. Norton, Ch. 8 (ASlutsky Equation@) and Ch. 14 (AConsumer=s Surplus@)
2/4: Additional applications and journal articles ; Finish reading above text material
"Some Evidence on the Alchian and Allen Theorem..." Bertonazzi et al.Economic Inquiry, July 1993
"The Effect of Compensation Awards Upon Consumption and Savings," Slesnick and Dolin, Journal of Forensic Economics, May 1988
AThe Valuation of Lost Household Services in Partial Disability Cases,@ Burns and Faurot, Journal of Forensic Economics, Fall 1995
2/6: Further discussion of above articles from 2/4; Labor supply decisions, constrained optimization/ income v. substitution
F: Ch. 14; pp. 493-501
N: Ch. 22
2/11: Choice with uncertainty; Attitudes toward risk: the basic approach
F: Ch. 6; pp. 196 to the end
N: Ch. 8
2/13: The economics of risk: Alternative viewpoints (Kahneman- Tversky); Modifications (Friedman/Savage)
F: Ch. 8
Supplemental lecture materials via WebCt
Milton Friedman and L.J. Savage, AThe Utility Analysis of Choices Involving Risk,@ classic article from Journal of Political Economy, Vol. LVI (1948), pp. 279-304 (via JSTOR)
Article by Kahneman and Tversky (to be assigned, via JSTOR)
1
2/18: Introduction to the debate about taste formation and taste differences; Lancastrian characteristics analysis
F: Ch. 7
N: Ch. 6, pp. 175-179
N: Ch. 3, "Extensions," pp. 95-97
Evan Douglas and Scott Callan, excerpts from Ch. 3, pp. 85-100, AAttribute Analysis.@
2/20: Exam I distributed; Additional discussion of taste formation and taste differences; Overview of the Becker approach (see lecture posted on WebCt or handed out)
2/25: Exam I due; Finish "modern theory of consumer behavior" discussion.
2/27: Return and discuss Exam I
3/4-3/10: No classes: Spring Break
3/11: Overview of production and cost theory; Modern theory of the firm vs. traditional neoclassical theory; (Last day to withdraw with a “W”)
F: Begin Chs. 9 and 10
N: Begin Chs. 11 and 12
3/13: Production and cost applications continued.
F: Chs. 9 and 10
N : Chs. 11 and 12
3/18: Sample exam problems discussed in class
3/20: Profit maximization and the purely competitive model
F: Ch.11
N: Ch. 13
3/25: Applications of the purely competitive model
N: Chs. 14 and 15
3/27: Competitive applications concluded; selected general equilibrium topics
N: Ch. 16 to page 480 only
N: Ch. 17, to page 524 only
1
4/1: Begin market power applications
F: Ch. 12
N: Ch. 18
4/3: Monopoly model and applications concluded
F: Ch. 12
N: Ch. 18
Excerpts from Edgar Browning and Mark Zupan, Microeconomic Theory & Applications, Sixth Edition, Addison-Wesley Longman, Inc., Ch. 11, AProduct Pricing with Monopoly Power: Two-Part Tariffs@
4/8: Selected topics from oligopoly modeling
F: Ch. 13, to page 467
N: Ch. 19
4/10: Conclude selected oligopoly topics
4/15: Labor and input market analysis: selected topics
F: Ch. 14
N: Ch. 21
4/17: Input analysis continued; sample exam problems
F: Ch. 14
N: Ch. 21
4/22: Analysis of issues related to capital
F: Ch. 15
N: Ch. 23
4/24: Conclude analysis of capital; Problems
4/29: Special pricing topics; transfer pricing and vertical issues; Intro to tying-contracts (only if time allows; otherwise catch-up on previous topics)
Articles to be distributed
Take home final exam due Noon, May 6, 2002 (put into the wall box outside my office at 636 RCB or in my mailbox near my office).
1
1