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COURSE OUTLINE

ECON1101 Microeconomics 1

(& ECON7073 Microeconomic Principles for Economic Policy)

School of Economics, College of Business and Economics

Course Description The course examines how individuals and firms make

decisions by weighing up costs and benefits, and how the interaction of their decisions leads to market and social outcomes. The model of market supply and demand is employed to examine the effects of taxes, subsidies, and other government interventions in market activity. The implications of different market structures, including perfect competition and monopoly, are examined. Public goods, externalities and common resources are key examples of cases in which private markets may yield socially sub-optimal outcomes. Such cases are examined and the role of government policy in correcting for these is discussed. Special attention is given to the design of schemes aiming to reduce carbon emissions.

Learning Outcomes On satisfying the requirements for this course, students will have the knowledge and skills to:

• understand economic policy debates as presented in the media;

• think as an economist; and

• present clearly written analysis of economic issues and problems.

Lecturer Professor Steve Dowrick Room 2006, HW Arndt Building Email: Steve.Dowrick@anu.edu.au Head Tutor Ms Kristen Wren Room 1008, HW Arndt Building Email: Kirsten.Wren@anu.edu.au Course Administrator Mr Terry Embling Room 1013, School of Economics Office, HW Arndt Building Phone: 6125 0384

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Course Textbook Hubbard, Glenn, Anne Garnett, Philip Lewis and Anthony O’Brien (2008), Microeconomics, Pearson Education Australia. A limited number of copies will be available through short-term loan in the Chifley Library.

Wattle Wattle is an ANU site where students can access supplementary course material including tutorial exercises and lecture material; and announcements about lectures, essay topics, exams and other course administration matters. Wattle can be accessed via the ANU student home page - http://wattle.anu.edu.au/ . Students are advised to check Wattle weekly.

Lectures 11am – 12noon, repeated at 5-6pm, in Manning Clark Lecture Theatre 1, on Tuesday, Wednesday and Thursday of each of the 13 teaching weeks. Lecture Outlines will be posted on Wattle before the lecture. You may find it useful to bring a printout of the outline to each lecture to use as the basis of your own notes. Audio recordings of lectures will be available through Wattle.

Lecture Feedback Feedback boxes will be placed by the doors in the Lecture Theatres. If you choose to give the lecturer feedback, please place your written comments in the boxes on your way out of the lecture.

Tutorials Tutorials will start in Week 2. Enrol on-line at http://eta.fec.anu.edu.au/eta/index.php - enrolments will be accepted after 9:30 am on the day following the first lecture. The enrolment can be varied online during the first two weeks of the semester. After that any student wishing to change tutorial times must see the Course Administrator. By the end of each week, tutorial questions will be posted on Wattle. These question will be considered in the following week’s tutorial class. You should do the recommended reading and attempt written answers to the questions before attending your tutorial. You may be asked to explain your answers during the tutorial. You will have the opportunity to ask your tutor to explain material that you do not understand. Preparing written answers and participating in your tutorial is the most effective way of learning the course material and for starting to think as a (micro) economist.

Own Study University study requires at least as much time and effort as a full-time job. You should expect to put in at least 6 hours per week of your own study time for this course in addition to the 4 hours of lectures and tutorials. Discussion with fellow students can be extremely valuable. But all written work for assessment must be your own original work.

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On-line Learning If you buy the textbook you will find an access code to online resources which allow you to test your learning through quizzes on each chapter. Answers (including explanations for any mistakes) are provided. These quizzes are for your own enlightenment and are not part of the course assessment. For students who do not buy the textbook, a default access code can be issued – email the head Tutor. This will allow access to quizzes and answers, but not to the chapter by chapter content of the textbook.

Help Desk The Microeconomics Help Desk in Arndt 1002 will be open Wednesday 2-5 pm and Thursday 12-3 pm. Tutors will be there to answer any questions about the contents of the course that you have not been able to resolve through your own study and participation in your tutorial group.

Lecturer Consultation The lecturer will be available for consultation in Arndt 2006 between 11 am and 12 noon on Fridays. Please note that administrative matters should be dealt with by the Course Administrator; and course content problems should be dealt with first by consulting your tutor and then the Help Desk.

Assessment There will be four compulsory assessments for ECON1101:

1. Mid-term Exam (15% or 30%) A one-hour mid-term exam will be held at the end of Week 6. The examinable material will be all that is covered in the lecture outline up to and inclusive of Week 6.

2. Essay (15%) A 1000 word essay (max 1200) to be handed in to the Course Administrator’s office by the end of Week 8 (4pm, 30 April). Late submission will be penalised by a 10% downgrade for every (working) day late.

The essay topic will be announced in lectures and posted on Wattle by the end of Week 5.

The work you submit for the essay must be your own original work. You must not copy other people’s words without acknowledgment. Detailed instructions for presenting quotations and citing other people’s work will be distributed as guidelines with the essay topic. The Academic Skills and Learning Centre will announce opportunities to register for workshops focussing specifically on essay-writing for this course.

3. Tutorial Test (10%) A 30 minute test will be held in tutorials during Week 10

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covering questions set for tutorial exercises in the previous 3 weeks.

4. Final Exam (60% or 45%) The three-hour final exam will be held in the examination period between 10 and 26 June. The final exam is usually held during the first week of this period. Details will be posted on the ANU exam timetable site.

Examinable material will be everything covered in the Course Outline and in lectures, including material already covered in the mid-term exam.

Course Mark The final mark for the course will be weighted as indicated above, subject to possible scaling of marks for the whole class. The mid-term exam is partially redeemable against the final exam. If your mid-term mark is less than your final exam mark, the respective weights will be 15% and 60%; if your mid-term mark is higher, the weights will be 30% and 45%.

For students enrolled in ECON7073, the course mark will be calculated as above for 85% of the total, with an additional 15% coming from the special additional essay that these students are set. See the ECON1101 page on Wattle for details of these additional requirements and additional tutorials.

Special Exams, Special Consideration, Supplementary Exams, Academic Honesty, etc. The university has rules dealing with situations where you are

unable to attend or complete assessments to the best of your abilities due to accident, illness etc. It is your responsibility to familiarise yourself with the rules with regard to special examinations, special consideration and supplementary exams - see http://cbe.anu.edu.au/Current_Students/general_info/ under General Policies. Clarification can be obtained from the College Student Administration Office.

Requests for Special Exams must be made to the College Student Administration Office .

Requests for Special Consideration should be made to the School of Economics.

The university has strict rules in relation to academic honesty. The underlying principle is that all work submitted for assessment (essays, exams etc) should be your own original work. You should consult the site http://academichonesty.anu.edu.au/ for ANU’s policies and advice on how you can avoid cheating and plagiarism.

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COURSE LECTURE OUTLINE

The numbering is an approximate guide to the week in which material will be presented. More detailed lecture notes will be posted on Wattle by the Monday of each week.

Examples of the application of microeconomic principles will be developed throughout the course. One theme will be the economic principles underlying the design of schemes to reduce carbon emissions.

The Chapter numbers refer to the textbook by Hubbard et al.

WEEK 1. Basic economic principles (Ch. 1) - introductory examples of markets - weighing up costs and benefits - the principle of opportunity cost - sunk costs - making decisions at the margin - using graphs to clarify our thinking

WEEK 2. Production and Trade (Ch. 2) - the production possibility frontier - benefits from trade - absolute and comparative advantage

WEEKS 3-4. Supply and demand (Ch. 3, 4 & 5)

- what affects supply and demand curves? - is demand changing or is supply changing? - Three Steps to Heaven - elasticities - price controls and black markets - the impact of taxes and controls on market price and quantity - income distribution: who bears the burden of the taxes?

WEEK 5. Consumer Choice (Ch. 6) - consumption benefits: total and marginal - equalising marginal utility per dollar - normal, luxury and ‘Giffen’ goods - revealed preference - social and psychological influences on consumer decisions

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WEEK 6. Externalities and the environment (Ch. 15) - positive and negative externalities - private or government solutions

- the economics of an emissions trading scheme WEEK 7. Production technologies and competitive markets (Ch. 7 & 8)

- diminishing returns to single factors - economies and diseconomies of scale - conditions for ‘perfect competition’ - competitive supply - welfare implications of competitive markets – efficiency and equity

WEEKS 8-9. Non-competitive markets (Ch. 9-11) - economies of scale - product differentiation - barriers to entry - pure monopoly - monopolistic competition - competition between a few - game theory and the Prisoner’s Dilemma

WEEK 10. Asymmetric Information (Ch. 14) - the market for lemons - employment contracts - solutions to information problems

WEEK 11. Income distribution and social policy (Ch. 16) - progressive and regressive taxation - measuring income distribution and poverty - global income distribution

WEEK 12. International Trade (Ch. 13)

- comparative advantage, static and dynamic - winners and losers - tariffs and subsidies

WEEK 13. Summary and Revision

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Supplementary Reading

1. Garnaut, Ross (2008), Garnaut Climate Change Review: emissions trading scheme discussion paper, Melbourne : Garnaut Review Secretariat. [electronic version accessible through ANU library]

This is a relatively short version of the issues raised in the Garnaut Report.

2. Garnaut, Ross (2009), The Garnaut climate change review : final report, Cambridge ; New York : Cambridge University Press.

This is the full version.

3. Levitt, Steven D and Stephen J Dubner (2005), Freakonomics : a rogue economist explores the hidden side of everything , New York : William Morrow. This is an entertaining guide to microeconomics applied to a host of interesting social phenomena.

4. Stanford, Jim (2008), Economics for Everyone: a short guide to the economics of capitalism, London: Pluto Press.

This presents an alternative and critical view of economics.