Lecture Notes for

ECN 102: Microeconomics

Spring 2016

Matt SveumMoberly Area Community College

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Contents

A Syllabus 3

B Introduction to Economics 7

1 Cost-Benefit Analysis 8

2 Markets 92.1 Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.2 Elasticity and Demand Shifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.3 Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.4 Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3 Economic Surplus & Price Controls 133.1 Individual Economic Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133.2 Market Economic Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133.3 Price Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

4 Taxes 15

5 Subsidies 17

6 PPF & Trade 186.1 Production Possibilities Frontier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186.2 Gains from Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

7 Trade Restrictions 217.1 The Export Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217.2 The Import Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

8 Types of Firms; Accounting Profit & Economic Profit 238.1 Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

9 Production & Cost 259.1 Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259.2 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

10 Market Types & Perfect Competition 2710.1 Perfect Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

11 Monopoly 29

12 Game Theory 30

13 Utility Theory 32

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A Syllabus

CATALOG # ECN102-04CIP# 45060102

DATE: October 2004

Moberly Area Community CollegeSyllabus

ECN 102: MicroeconomicsCurrent Term: Spring 2016

Instructor: Matt SveumOffice Hours: By appointmentContact Information: matthews@macc.eduClassroom Number: 145Class days and time: Tuesdays & Thursdays 4:30-5:55pm

Catalog Description: ECN 102 Microeconomics (3-0-3)A description and analysis of the behavior of households and business firms in the economy.

The course includes the analysis of supply and demand, price and output determination in compet-itive and noncompetitive markets, the cost of production of goods and services, resource markets,economic institutions and international trade.

Prerequisite(s): None

Text: McConnell, Brue, and Flynn’s Microeconomics, 20th Edition, McGraw-Hill Publisher. Youmay use an old edition of the textbook. You will never have problem sets out of the book, and thematerial hasn’t changed enough to warrant requiring the new edition. A copy of the 18th Editionis on reserve in the Media Center in the basement.

On-line classes may have a different textbook, please check MACCs Booklisthttp://www.macc.edu/∼bookstor/disclaimer.shtml

Other Requested Materials: You are not required to buy access to any news sources, butfollowing current events will help you to follow what we are discussing in class. I will try to bring inreal-world examples, so reading a newspaper of your choice online (most of the time these are free)will help you with these discussions.

Purpose of Course: Microeconomics is designed to help the beginning student comprehend theprinciples essential for understanding the basic economizing problem, specific economic issues andthe policy alternatives. It is also designed to help the student to understand and apply the economicperspective and to reason accurately and objectively about economic matters.

Course Objectives:

1. To introduce the student to the field of economics and an understanding of the problems ofchoice.

2. To examine the concept of scarcity of resources and their allocation in a market system

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3. To consider the impact of economics upon society

4. To gain an understanding of unemployment and inflation and potential solutions to theseproblems

5. To introduce the student to the role of the United States in a world economy

6. To understand a variety of contemporary problems facing society including pollution, incomedistribution, and failings of the market system

Course Content:

1. Introduction to economics and the economy

2. Consumer behavior

3. Microeconomics of product markets

Assessment of Student Learning:

1. Attendance, Participation, and Worksheets (15%): I will take attendance during every classperiod. I also expect that you participate in class. This includes asking questions duringlecture, but it also means contributing while working in groups. Economics requires activelearning, and these points are designed to encourage you to participate. I will also giveperiodic extra credit this semester. These extra credit assignments will generally require thatyou complete them in class, meaning students who are absent will not be able to earn theextra credit. Additionally, after every topic we will have an in-class worksheet covering thematerial. Worksheets are due before you leave class, and will be graded based on completion.If you miss class on a day that we do a worksheet, you can print it off from Canvas and turnit in at the start of the next class for half credit.

2. Homework (20%): The homework is designed to prepare you for the exams. If you can do thehomework, you will be in good shape for the exams. Assignments must be readable and mustbe stapled. If you do not staple your assignment, you will have to buy a staple from me for 1point. You are allowed to work with classmates, but it is imperative that you understand thework that you turn in. Depending heavily on a classmate to compete the assignment may getyou a good grade, but you will be very unhappy with your exam performance. Homework willbe graded out of 10 points based on your understanding of the material.

3. Midterms (40%): There will be two midterm exams given this semester on February 11 andMarch 17 in class. They will be worth 20% apiece. Exams will be a combination of multiplechoice and short answer questions and you will have 90 minutes to complete them. Examsare closed book. You may NOT use cell phones as calculators. Midterm exams are notcumulative. I will generally not give make-up exams, so plan on being in class on those twodays.

4. Final Exam (25%): There will one cumulative final on May 5. This will cover material fromthe entire semester, although it will be weighted toward the material after the second midterm(about 2/3 new and 1/3 old material). As with the midterms, the final is closed book andonly simple function calculators will be allowed.

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5. Grading Scale:

Grade PercentA 90-100B 80-89C 70-79D 60-69F 0-59

Instructor Policies:

Attendance: Any student who misses two consecutive weeks of class during a regular sixteen weeksemester or the equivalent proportion of the class time during a shorter session will be dropped fromthe class by the instructor unless acceptable justification is supplied. Additionally, any student whomisses more than one-fourth of the entire number of in-seat class meetings in a regular 16- weeksemester or the equivalent proportion of class time during a shorter session, may be dropped fromthat class by that instructor if, in the opinion of the instructor, the student does not have reasonableopportunity to succeed in the class.

Student attendance must be defined in a different manner for online, hybrid, and virtual courses.Student attendance in these courses is defined as active participation in the course. Online, hybrid,and virtual courses will, at a minimum, have weekly mechanisms for student participation, such asany or all of the following methods:

1. Completion of quizzes or exams

2. Submission of assignments

3. Participation in threaded discussions

4. Communication with the instructor

A student who does not participate in an online, hybrid, or virtual course for two consecutive weekswill be dropped by the instructor unless acceptable justification is supplied.

Attendance and Lecture: Attendance in class and textbook reading are not substitutes. Simplyreading the textbook will not be sufficient to do well in this class. It is highly suggested that youread the relevant chapters ahead of lecture, which will prepare you to ask questions.

Tardiness: Please be on time. I know that sometimes events necessitate being late, but I expectthat you will make every effort to be in class on time.

Technology: Because of the distractions they cause, and because it is very hard to take good noteson a laptop in an economics course, you are not allowed to use a laptop in class. I am okay withyou using a tablet, but you should be using it for the class and not for other activities.

Communication: You are expected to check Canvas regularly. I will post all assignments onCanvas, so you can find homework on there if you miss class. I will also email announcements fromtime to time. You are responsible for checking your email and any information emailed out.

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Make-up and late work: I will not accept any late work. I will drop two homework and worksheetgrades to account of this no late work policy.

Americans with Disabilities Act Statement:Students who have disabilities that qualify under the Americans with Disabilities Act may reg-

ister for assistance through the Office of Access and ADA Services. Students are invited to contactthe Access Office to confidentially discuss disability information, academic accommodations, appro-priate documentation and procedures. For more information, please call either the Moberly officeat (660) 263-4100 x 11240 or the Columbia office at (573) 234-1067 x 12120, or visit our web pageat http://www.macc.edu/index.php/services/access-office.

Title IX StatementMACC maintains a strict policy prohibiting sexual misconduct in any form, including sexual

harassment, sexual discrimination, and sexual violence. All MACC employees, including facultymembers, are considered mandated reporters of sexual misconduct and as such are expected tocontact the Title IX Coordinator when they become aware, in conversation or in writing, of anincident of sexual misconduct. For more information on this policy or to learn about supportresources, please see http://www.macc.edu/sexual-misconduct-policy or contact Dr. JackieFischer, MACCs Title IX Coordinator, at 660-263-4110, ext. 11236 or jackief@macc.edu.

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Exam I Material

B Introduction to Economics

Building Models

near Columbia — Boone

1 of 1

00 0.250.25 0.50.5 0.75 miles0.75 miles

near Columbia — Boone

1 of 1

00 0.250.25 0.50.5 0.75 miles0.75 miles

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1 Cost-Benefit Analysis

Expectations:

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2 Markets

2.1 Demand

Price Person 1 Person 2 Person 3 Market5 10 12 84 20 23 173 35 39 262 55 60 501 80 86 54

The Law of Demand:

Graphing the market demand curve:

2.2 Elasticity and Demand Shifts

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Increase: Decrease:

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2.3 Supply

The Law of Supply:

Increase: Decrease:

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2.4 Equilibrium

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3 Economic Surplus & Price Controls

3.1 Individual Economic Surplus

MB Price Surplus123456

MC Price Surplus123456

3.2 Market Economic Surplus

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3.3 Price Controls

Price Floor:

Price Ceiling:

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4 Taxes

Person 1 Person 2 Person 3 Person 4PEMB 2 4 6 10PEMC 8 6 4 2Surplus

Suppose there is a $3 per pack social harm from smoking cigarettes.

Person 1 Person 2 Person 3 Person 4PEMB 2 4 6 10PEMC 8 6 4 2Surplus

Social HarmSurplus

Suppose that we ban cigarettes.

Person 1 Person 2 Person 3 Person 4PEMB 2 4 6 10PEMC 8 6 4 2Surplus

Social HarmSurplus

Suppose we impose a $3 per pack tax on cigarettes.

Person 1 Person 2 Person 3 Person 4PEMB 2 4 6 10PEMC 8 6 4 2Surplus

Social HarmSurplus

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Before:

Place a $2 per pack on buyers: Place a $2 per pack on sellers:

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Exam 2 Material

5 Subsidies

Before:

$2.50/unit subsidy to the buyers: $2.50/unit subsidy to the sellers:

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6 PPF & Trade

6.1 Production Possibilities Frontier

Agricultural Goods Manufactured GoodsABCDE

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Land is gained from a neighboring country: 25% of the population dies during a plague:

The retirement age increases to 70: The government subsidizes ag. eduction:

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6.2 Gains from Trade

Wheat CornUnited States 200 400

Canada 100 400

Without Trade With TradeWheat Corn Wheat Corn

USCanadaWorld

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7 Trade Restrictions

7.1 The Export Market

The market for wheat:

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7.2 The Import Market

The market for corn:

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8 Types of Firms; Accounting Profit & Economic Profit

Sole Proprietorships Partnerships Corporations

Principal-Agent Problem

Stocks Bonds

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8.1 Profit

• Number of loaves sold: 20,000

• Number of bagels sold: 36,000

• Number of scones sold: 18,000

• Price for bread: $8

• Price for bagel: $2

• Price for scone: $1

• Wages: $100,000

• Supplies: $60,000

• Purchase of a van: $20,000

• Depreciation rate: 10%

• Utilities: $4,800

• Money borrowed from the bank: $300,000 (5% interest)

• Taxes: $50,000

• Old salary: $50,000

• Store (owned by you; previously rented out): $40,000

• Money from savings: $50,000 (3% interest)

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Final Exam Material

9 Production & Cost

9.1 Production

Labor (L) Output (TP) APL MPL

0 0 — —1 202 503 904 1205 1406 1507 155

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9.2 Cost

Suppose we pay workers $100 and our fixed capital costs $200.

L Q Fixed Costs Variable Costs Total Costs AFC AVC ATC MC0 01 202 503 904 1205 1406 1507 155

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10 Market Types & Perfect Competition

Perfect Competition

Monopolistic Competition

Oligopoly

Monopoly

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10.1 Perfect Competition

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11 Monopoly

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12 Game Theory

Figure 1: A game.

Side

TopLeft Right

Up a, a a, bDown b, a b, b

Figure 2: Prisoner’s Dilemma (Payoffs are in millions of dollars).

Firm A

Firm BHigh Price Low Price

High Price 3, 3 1, 4How Price 4, 1 2, 2

Figure 3: Prisoner’s Dilemma (Payoffs are in years spent in prison).

Prisoner A

Prisoner BSilent Confess

Silent -2, -2 -10, -1Confess -1, -10 -5, -5

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Figure 4: Battle of the Sexes (Payoffs are in millions of dollars).

Firm A

Firm BTechnology A Technology B

Technology A 7, 4 3, 3Technology B 0, 0 4, 7

Figure 5: Rock, Paper, Scissors

Player 1

Player 2Rock Paper Scissors

Rock 0, 0 -1, +1 +1, -1Paper +1, -1 0, 0 -1, +1

Scissors -1, +1 +1, -1 0, 0

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13 Utility Theory

Apples Total Utility MU MU/$ Oranges Total Utility MU MU/$0 0 0 01 10 1 242 18 2 443 25 3 624 31 4 785 36 5 906 40 6 967 43 7 100

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