Economics 361: Intermediate Microeconomics

Spring 1999.
Meets Mondays and Wednesdays, 9:30 - 10:45, in McClelland 120.

Professor: Mark Walker. Office hours: MW 2:30-3:15.
Also by appointment:

Craig Finster Office hours: TuTh 8:00 - 9:15, Room 401C.
Ben Lippert Office hours: TuTh 2:00 - 3:00, Room 401B.
Lisa Meinhardt Office hours: M 11:00 - 12:15, W 8:30 - 9:30, Room 401B.

Course description

The foundations of the analysis of economic decision-making by individual economic units (individuals, households, firms, interest groups) and the analysis of interaction among individual units in bargaining, markets, and industries. This course is the foundation for most other courses in the Economics major. Prerequisites: Econ 200, 201, or 210; Math 123,124, or 125a.

Textbook: Intermediate Microeconomics (7th edition), by Walter Nicholson.

Optional course materials will regularly be made available for purchase at the Harvill Copy Center, in Room 137 of the Harvill Building. These will include such things as lecture notes, solutions to exercises and exams, sample exams (and solutions) from previous years, optional additional exercises, etc. The total cost of all these optional items, over the course of the semester, will be about ten to fifteen dollars. See below for an up-to-date list of the items that are available at the Harvill Copy Center.

I will expect you to have an email account and to check it regularly. This is not required, but you will find it much easier to communicate with me or with the preceptors by email than by phone, and I will often communicate with everyone in the class via email.

Exercises, Quizzes, Exams, and Grading

Regular exercises will be assigned. The exercises will give you practice and feedback on how you're doing. The exercises will not be graded, but if you take them to one of the preceptors for feedback, they will be glad to tell you how you are doing and to help you with any difficulties you're having. The preceptors will hold office hours; you should take advantage of that opportunity to get help. Most Wednesdays there will be a brief quiz at the end of the lecture; the quiz will be one of the exercises you were assigned earlier, or very similar to one of the exercises. The quizzes will count as one "unit" in determining your course grade (see below). Your worst three quiz grades will be discarded. (If you choose not to take the final exam, the worst three quiz grades prior to the last midterm will be discarded.) Missed quizzes cannot be made up.

There will be two mid-term exams and a comprehensive final exam. The quizzes are one unit, each mid-term exam is one unit, and the final exam is two units. Your course grade will be the average of your best three grades from among those five units. In other words, your worst two grades will be discarded. (An example: Quizzes B; Mid-term exams F and B; Final exam C, which counts double. The F and one C are discarded, leaving you with two Bs and a C, and your course grade is therefore a B-. If the Bs and the C are very high ones, your grade is a B; if all are very low, it might be a C+. But only these three grades are counted.)

!! There will be no make-up exams !!
( This includes the final exam )

Objectives of the Course

Students are expected to come out of this course with the ability to use microeconomics as a means for evaluating alternative choices (such as policy choices, business and personal choices) and also with some understanding of microeconomics as a science (a discipline that helps us understand how people and institutions behave). The course will make use of functions and calculus as essential tools for doing economic analysis.

Course Outline

1. Consumer choice:
Indifference curves and maps. Budget constraints. Constrained maximization (determination of the chosen bundle from a utility function and the "MRS = price-ratio" marginal condition). Deriving a demand function. Comparative statics. Substitution and income effects. Normal and inferior goods. Elasticity. Consumer surplus.

2. Equilibrium and welfare:
Edgeworth box. Market equilibrium. Pareto efficiency, and characterization via the equalization of marginal rates. Efficiency of equilibrium and the importance of "competitive" conditions. Prices as signals for resource allocation.

3. Intertemporal choice:
Present value of an asset and of a stream of returns and costs. Equilibrium and efficiency of saving and investment decisions.

4. The firm:
Revenue, cost, and profit. The profit maximization assumption, and characterization via the MR = MC condition. Production function, marginal product, MRTS. Cost function via cost minimization for given output. Total, average, and marginal cost curves. Returns to scale. Long run and short run. Price-taking ("competitive") firm: P = MC. Derived demand for inputs. Comparative statics.

5. Competitive equilibrium:
Market demand and supply functions as sums of individuals' functions. Calculating equilibrium from demand and supply functions. Long run and short run. Comparative statics.

6. Imperfect competition:
Monopoly; welfare comparison of the monopoly and competitive outcomes. Cartels. Oligopoly: Cournot analysis. Comparison of monopoly, oligopoly, competition.

7. Externalities:
Public goods. Efficiency. Other externalities. Bargaining, and the Coase analysis and its limitations.

Items At Harvill Copy Center


The scoring of the quizzes is as follows:

4: Good
3: Mostly correct
2: Some things correct, some incorrect
1: Mostly incorrect
0: Nothing answered correctly


Exercise Set #3

Finish reading Chapter 2 and read Chapter 3.

Do Exercises #2.7 - 2.10 and #3.1 - 3.4 in the Nicholson textbook.

Do the following two exercises:

1. If there were only two goods in the world, with quantities denoted by x and y, determine the demand functions for x and y of an individual whose preferences are described by the utility function
u(x,y) = log x + 3 log y.
What proportion of his expenditures are for the x-good? How is the proportion affected by his wealth or by prices?

2. Answer Question #1 above for the utility functions
u(x,y) = xy3 and
u(x,y) = (xa)(yb).
How do you account for the similarities in your answers? Mark Walker's Home Page