Introduction to Microeconomics (22096)
Degree/study: Degree in Economics
Year: 1st
Term:1st
Number of ECTS credits: 6 credits
Hours of studi dedication: 150 hours
Teaching language or languages: Spanish
Teaching Staff: Nagore Iriberri and Humberto Llavador
1. Presentation of the subject
In this course you will learn about economic principles, firstly, by taking part directly in experiments and, secondly, by studying the related economic theory and its applications. Whilst taking part in the economic experiments, you will be able to observe economic principles in action. After compiling and working on the data gathered during each experiment, we will present the economic theories that are designed to explain the principles you have discovered in the laboratory and discuss what their applications are. This process will give you an appreciation of how simplified economic theory can explain the economic world in which we live.
2. Contents
Part One: Competitive Markets
Module 1. Introduction to Economics
Bibliography: Harford, Tim (2007) The Undercover Economist. The economics of small things. Chapter 3.
[M] Ch. 1:1-8 and Ch. 2.
Module 2. Demand and Supply
2.1 A model of competitive markets
2.2 The supply curve
2.3 The demand curve
2.4 Price and equilibrium quantity
2.5 Who does business in the equilibrium?
2.6 Reserve price, seller's benefits and consumer surplus
2.7 The efficiency of competitive equilibrium
2.8 Competitive market model with smooth demand and supply curves
Bibliography: [BM] Ch. 1 and Appendix A.1. [M] Ch. 4; Ch. 7.
Module 3. Shifts in Supply and Demand
3.1 Review of the model of competitive markets: input and output.
3.2 The supply curve with variable costs and fixed costs
3.3 Comparative statics: shifts in supply
3.3.1 What happens to the equilibrium quantity?
3.3.2 What happens to the equilibrium price?
3.3.3 What happens to equilibrium benefits?
3.4 Comparative statics with smooth demand and supply curves.
3.4.1 What happens to the equilibrium quantity?
3.4.2 What happens to the equilibrium price?
3.4.3 What happens to equilibrium benefits?
Bibliography: [BM] Ch. 2, Appendix A.2. [M] Ch. 4.
Module Module 4. Slopes and Elasticity of Supply and Demand Curves
4.1 Sensitivity of the quantity demanded/supplied to price changes.
4.2 Slope: definition and calculation.
4.3 Elasticity: definition and calculation.
4.4 The relationship between slope and elasticity.
4.5 Comparative statics: elasticity and total income
Bibliography: [BM] Appendices A.3, A.4 and A.5 [M] Ch. 5.
Part Two: Market intervention and economic policy
Module 5. Sales tax
5.1 Sales tax for sellers.
5.1.1 How does it change the supply curve ?
5.1.2 Price and equilibrium quantity.
5.2 Sales tax for buyers.
5.2.1 How does it change the demand curve?
5.1.2 Price and equilibrium quantity.
5.3 Results comparison: tax on sellers and buyers.
5.4 Who pays the tax? Depends on the elasticity.
Bibliography: [BM] Ch. 3. [M] Ch. 6:77-82.
Module 6. Taxes and Welfare
6.1 First Welfare Theorem: efficiency of competitive markets
6.2 Government intervention via taxation:
6.2.1 Welfare analysis with and without taxation
6.2.2 Loss of efficiency (excessive burden) and cost of taxation
6.3 Why do we have taxes? Efficiency and fairness
Bibliography: [BM] Ch. 3. [M] Ch. 7 and 8.
Module 7. The labour market and the minimum wage
7.1. Introduction.
7.2 Labour demand.
7.2.1 Law of the value of marginal product.
7.2.2 Marginal product and average product.
7.2.3 A company's labour demand curve.
7.2.4 The market's labour demand curve.
7.3 Labour supply.
7.4 Competitive equilibrium in the labour market.
7.5 Effect of a minimum wage.
7.6 Minimum and maximum prices.
Bibliography: [BM] Ch. 5. [M] Ch. 6:71-77; Ch. 18:239-247.
Part Three: Imperfect markets, aggregation and technology
Module 8. Externalities
8.1. Introduction.
8.2 Competitive markets and externalities.
8.3 Taxes on pollution.
8.4 Transferable permits.
8.5 Positive externalities and subsidies.
Bibliography: [BM] Ch. 6 [M] Ch. 10
Module 9. From individual markets to aggregated markets
9.1 Microeconomics and macroeconomics
9.2 GDP, Retail Prices Index (RPI) and inflation
9.3 Employment-Unemployment.
Bibliography: [M] Ch. 23 and 24. Díaz-Giménez, Macroeconomía (Macroeconomics), Ch. 5 and 6
Module 10. Monopolies and cartels
8.1 Monopolies and competitive markets
8.2 Behaviour of monopolies
8.2.1 Total income and total cost
8.2.2 Marginal income and marginal cost
8.2.3 Quantity and price in monopolies
8.3 Comparison between monopolies and competitive markets
8.4 Monopolies with smooth curves
8.5 Cartels
Bibliography: [BM] Ch. 7 (except pp. 231-234). [M] Ch. 13; Ch. 15:193-204
Module 11. Network externalities
11.1 What are network externalities?
11.2 Network externalities and demand curves
11.3 Equilibrium with network externalities
11.4 Stable equilibria, unstable equilibria and critical mass
Bibliography: [BM] Ch. 9
3. Assessment
- 50%: Final exam. During the examination period (9-23 December). Students are required to pass the final exam.
- 20%: Partial exam (8-9 November, during the seminar).
- 20%: Weekly coursework. Each piece of coursework will be assessed for its completeness and one or two points will be selected at random for marking.
- 10%: Experiments. 5% will depend on attendance. Students who fail to participate in an experiment will receive zero benefits for that experiment. The remaining 5% will be proportionate to your average benefits (after excluding your best and worst benefits) compared with the benefits obtained by the rest of the class.
Important:
• Your benefits mark will depend on all the experiments carried out and on your results compared with the rest of the class - not just with those in your group.
• Various sessions and rounds of the same experiment will be carried out during one of the seminars. Not all rounds/sessions will count towards your benefits. We will choose benefits at random from the rounds and sessions of each experiment. The session and/or round that count/s towards benefits will be announced once the benefits are published for that experiment.
• The more benefits you make, the higher your score will be. To achieve large benefits, you need to obtain the best possible price. We will be using the following formula:
4. Bibliography and teaching resources
The main textbook is Experiments with Economic Principles (2nd edition) by Theodore C. Bergstrom and John H. Miller [BM]. The textbook is designed to teach economic principles by means of experiments. A second textbook, Principles of Economics (3rd Edition) by Gregory Mankiw [M], will be used for a number of specific subject areas and as a backup. The course requires students to read both books thoroughly and to work on the exercises included. Recommended complementary reading matter is available in Moodle.
5. Metodology
INSTRUCTIONS FOR EXPERIMENTS/SEMINARS
The mark for experiments depends on attendance and on accumulated benefits. To be able to take part in an experiment, students must be on time and have a student identification number (NIA).
Nobody who does not belong to the session sub-group shall be admitted once the experiment has started.
Before the seminar when the experiment is to be carried out, students need to have read the Module introduction in the textbook and done the warm-up exercises. The exercises not only ensure the seminars run smoothly, they also increase participants' chances of obtaining a larger benefits.
At the start of the experiment you will be given an information sheet about your role in the experiment. After each experiment, you will need to return the information sheet with the data relating to your participation in the experiment.
The Laboratory Notes from the experiment, which are needed to carry out the tasks, will be published in the Moodle classroom for that Module.
As in any society, unethical behaviour or breaches of the rules will be penalised with a loss of benefits.
7. Planning of activities
> 22-Sept: Module 0: Introduction: Contents and Organisation
> 29-Sept: Module 1: Introduction to Economics
• 4-5-Oct: Seminar 1: Demand and Supply
> 6-Oct: Module 2: Demand and Supply
• 11-Oct: Seminar 2: Shifts in Supply
Hand in Task 1 (Module 2)
> 13-Oct: Module 3: Shifts in Supply
> 14-Oct: Module 4: Slopes and Elasticity of Supply and Demand Curves
• 18-19-Oct: Seminar 3: Sales Tax
Hand in Task 2 (Modules 3 and 4)
> 20-Oct: Module 5: Sales Tax
> 21-Oct: Module 6: Taxes and Welfare
• 25-26-Oct: Seminar 4: Minimum Wage
Hand in Task 3 (Modules 5 and 6)
> 27-Oct: Module 7: Minimum Wage
• 2- Nov: Seminar 5: Externalities
Hand in Task 4 (Module 7)
> 3-Nov: Module 8: Externalities
• 8-9-Nov: Seminar 6: Partial Exam (Modules 1-7)
> 10-Nov: Module 9: From Individual Markets to Aggregated Markets
• 15-16-Nov: Seminar 7: Monopolies and Cartels
Hand in Task 5 (Modules 8-9)
> 17-Nov: Module 10: Monopolies and Cartels
• 22-23-Nov: Seminar 8: Network Externalities
Hand in Task 6 (Module 10)
> 24-Nov: Module 11: Network Externalities
Hand in Task 7 (Module 11) on 29 November.