Introductory Microeconomics Michaelmas Term 2014/Hilary Term 2015

Nikki Shure

nikki.shure@economics.ox.ac.uk

During Michaelmas term and the first half of Hilary term, you will be introduced to Microeconomics. In addition to attending lectures, you will have tutorials in groups of 2-3 and several classes with everyone together. I ask that you please submit all assignments to my pidge at LMH by 2pm on the day before your tutorial or class. If you have any questions or things you need to discuss with me, please send me an email and we can arrange a time to meet.

Tutorial, Class, and Lecture Plan

There are ten weeks of lectures: two per week throughout Michaelmas Term and the first two weeks of Hilary Term (please note that the numbering for these HT weeks continues on from the MT weeks). It is very important that you attend the lectures by Professor Ian Crawford, which take place on Mondays and Tuesdays at 11am in the Examination Schools.

If you have not done mathematics to at least AS-level, you should also attend the lecture course Elementary Mathematical Methods (Thursdays at 2 pm in the Manor Road Building, Rooms D, F and the IT room, and Fridays at 11 am in the Manor Road Building, Seminar Room C) given by Dr. Emma Howard and Dr. Andrew Mell.

Overview of the course structure:

Week 1 Maths Workbook Chapters 1 and 2

Week 2 Demand and Supply I;

Workbook Chapter 3

Week 3 Demand and Supply II;

Workbook Chapter 4

Week 4 Firms: production, costs and factor demands;

Workbook Chapter 5

Week 5 Firms: competition and monopoly;

Workbook Chapter 6

Week 6 Firms: imperfect competition

Workbook Chapter 7

! 2

Week 7 Consumers: preferences, constraints, demand

Workbook Chapters 8, 9 (1.1 and 1.2)

Week 8 Consumers: income and substitution effects

Vacation work

Consumers: applications (consumption over time, labor supply). Consumer welfare. Workbook Chapter 9

Week 9 Markets and market failure: welfare with perfect competition and imperfect competition.

Week 10 Markets and market failure: Welfare criteria; Market Failures. Government.

During the course we will work through the Maths Workbook, as shown in the table. The lectures will provide an overview of the subject. For tutorials you will need to study the material in more detail, which will require a considerable amount of reading and preparation.

The Economics Department Lecture List gives times and places for all lectures. This can be found on the Economics Department WebLearn page:

https://weblearn.ox.ac.uk/portal/hierarchy/socsci/econ/curr_student/undergrad

On the Weblearn page you will also find further information about the course and the examinations (course descriptions, lecture notes/slides, links to past exam papers).

Reading1 Introductory texts:

BVFD Begg, Vernasca, Fischer and Dornbusch Economics (10th Edition, 2011) LC Lipsey and Chrystal, Economics (11th Edition, 2007)

Other Textbooks: F R.H. Frank Microeconomics and Behavior 8th Edition 2010. MKR M. L. Katz and H. S. Rosen Microeconomics 3rd Edition, 1998, or W. Morgan,

M.L. Katz and H.S. Rosen, European Edition, 2006, 2nd European edition, 2009 P Perloff, Microeconomics with Calculus V Varian, Intermediate Microeconomics, (8th Edition, 2010)

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1 The references to textbooks in the tutorial work below refer to the editions listed here. You may use other (usually earlier) editions that you find in libraries, but if so be careful to find the right chapters or sections, since the numbering may be different.

! 3

Notes on reading

MKR is about the right level for most of the course, but doesnt have a sufficiently detailed introductory section for Demand and Supply; for this, the introductory textbooks provide good first reading, and P gives more depth.

F is a substitute for MKR, with good examples and applications. P is particularly useful for demand and supply, and for examples on partial equilibrium

welfare analysis. There are two versions. The one with calculus presumes that you know calculus. The other one (Microeconomics) does a similar job without calculus.

V is thorough, but somewhat abstract in approach. You should use at least one other textbook for alternative explanation, examples and discussion. The latest version is the 9th Edition (2014). Earlier editions are fine as well, though the chapter numbers change a little (there is a new Chapter 17). The chapters below refer to the 9th edition. Varian also has a new book called Intermediate Microeconomics with calculus. This is the same as the 9th edition of Intermediate Microeconomics but includes the calculus material that is otherwise in appendices in the text itself.

For mathematics, we will follow the Maths Workbook, available on WebLearn. You may want to use a textbook to supplement this material. For a fuller coverage of mathematical topics you can use:

Ian Jacques Mathematics for Economics and Business 3rd, 4th or 5th Edition (good if your maths background is limited and/or you lack confidence)

Geoff Renshaw Maths for Economics, 1st Edition, 2005 or 2nd Edition, 2009 (very thorough, right level, accessible even if you havent done any maths since GCSE)

Tutorial Work Guidelines

Each week you should read the appropriate chapters from the economics textbooks carefully, and take notes. There is a checklist of economics topics to be covered. I have included some additional checklist questions, which you do not need to submit, but should be prepared to answer and discuss in tutorials.

It is up to you to ensure that you cover everything in your reading: not all of what you need to know will be discussed in lectures or tutorials. If there are particular points in the lectures or your reading that you dont understand, the tutorial is your opportunity to ask questions.

In addition, you should work through the specified chapters of the Maths Workbook. The mathematics that you need for economics at undergraduate level does not go very much beyond A-level, but what you need to learn is how to apply it to economics problems. Also, you need to keep in practice; otherwise your ability to read and manipulate mathematical expressions gets rusty and you start to make mistakes.

All of your work must be clear and well presented. In general, your approach to economics questions, and maths for economics problems, should be to go beyond the minimum required by the question, providing relevant comments, interpretation and explanation for your answers.

! 4

So, for example, although question 2 in week 1 simply asks you to Draw a set of supply and demand curves your answer should include some brief commentary to explain how these represent the situation described.

There are also some Questions to think about for some weeks. There is no need to hand in answers to these, but you should think about them to test your own understanding of what you have read, and if there is time we may discuss them in the tutorial.

As the exam at the end of the year must be handwritten, please do not type any answers. Instead, work on making your writing legible.

There is a lot of work here, and limited time in the tutorial. You will not be able to discuss everything in tutorials, but do take advantage of the opportunity to discuss things with each other, either before or after the tutorial. If you get stuck on tutorial work, talk to other students who may be stuck at different points from you. If you want to work together sometimes, that can be a good way to learn, as long as you use it to improve your own understanding rather than relying passively on someone else.

! 5

Week 1: Maths Workbook Please note that in Week 1 I will hold a drop-in session for anyone who wishes to discuss questions on the Maths Workbook assignment. Tutorials will commence in Week 2 once lectures have started. You must still turn in a completed assignment.

Reading: Ch1 (Review of Algebra) Sections 1, 3.1-3.4, 4; Ch2 (Lines and Graphs) Sections 1, 2, 3 and 6 Tutorial Assignment: 1. Worksheet 1: 1, 2, 3, 4, 5, 6, 9(a) (b), 10(a) (b), 12(a), 13 2. Worksheet 2: 1, 3, 4 [Additional reference for maths: Renshaw Chapters 1-4]

! 6

Week 2: Demand and Supply I Reading:

Begg, Vernasca, Fischer and Dornbusch 3,4 and/or Lipsey and Chrystal 3,4, Perloff 2 and/or Frank 2 and/or Varian 1.

Checklist: opportunity costs, the methods of economics, simple supply and demand

Tutorial Assignment:

1. Explain the nature of the opportunity costs of the following activities: i) Attending a lecture; ii) Spending time on a train; iii) Extracting oil from underground.

2. You purchase a non-refundable ticket for a concert in Oxford for 40. Since the concert is worth 50 of enjoyment to you, you are satisfied with the purchase.

a. On your way to the concert, you lose your ticket. Should you purchase another one? Briefly explain.

b. The day before the concert (after you have purchased the ticket) you find there is play the same night you would very much like to go to (would derive 60 worth of benefit from), and for which tickets are only 35. What is your opportunity cost of going to the concert? Should you still go?

3. (From Katz and Rosen)

An article about the market for marijuana made the following three observations:

(i) In 1991, the price was $80 an ounce; several years earlier the price was $30 an ounce.

(ii) By 1991 marijuana smoking was no longer in vogue: health concerns have risen above the desire to get giddy.