Principles of Microeconomics
Prof. P. Franko
Office: Miller Library 236
Colby College Spring 2002
Ext. 3347; E-mail: pmfranko
Office Hours M 3:30-4:30; Tu 1-2; Wed 1:45-2:45 & by appt
The master economist must be mathematician, historian, statesman, philosopher--in some degree. He must
understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch
abstract and concrete in the same flight of thought. He must study the present in the light of the past for the
purposes of the future. No part of man's nature or his institutions must lie entirely outside his regard. He must be
purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near
the earth as a politician. J.M. Keynes, in R. Heilbroner, The Worldly Philosophers
This course introduces basic economic tools and perspectives. It focuses on microeconomics, the interaction of
individual firms and buyers in markets to determine the quantity and price of goods exchanged. After examining
how prices respond to supply and demand, we consider different forms of industrial organization, the contribution
of inputs, particularly labor, to production, income distribution, poverty and the environment. We then extend our
analysis to the international sector and close by questioning whether the market system is the best of all possible
ways to provide for the welfare of society.
A Study Strategy:
The text for this course is Case and Fair, Principles of Economics, (Englewood Cliffs, New Jersey) You are
encouraged to purchase the study guide (Beveridge, Study Guide) and to complete the exercises as we cover
chapters in class. Most other readings are from public websites. Be aware of the fact that many of these sites are
advocacy, political organizations or think-tanks with a particular point of view. They are purposefully selected to
encourage debate in the classroom.
Economics is easier read than done. I have found that for most students, learning economics proceeds in four
stages: introduction, familiarity, mastery, and performance.
It is important that you introduce yourself to the basic concepts prior to class.
•First read the learning objectives and chapter summary in the study guide.
•Read the text assignment, paying close attention to graphs.
Class attendance is critical to become familiar with the material. This is your opportunity to interact with
the concepts and see a variety of applications.
•Raise questions—if you don't understand you are probably not alone.
But the work doesn't end there. While you may understand the concept as you walk out the classroom
door, you still need to master it--be able to turn it inside out and upside down. The bulk of
mastery should take place before you sit down to study for your exam!
•After class (or at least once a week) rewrite your notes, integrating class notes and text examples.
Return to your text to fill out key concepts.
•Create study sheets or index flashcards.
•Use the section "Tips and Learning Suggestions" in the study guide to enhance your understanding.
•Identify the concepts that are still fuzzy, and bring them to office hours for clarification.
•Tutors can be arranged for students who need extra help.
•Complete homework as it is distributed.
The exam is your chance to show off your performance. As a pretest,
•Review your study notes
•Do the True/False and Multiple Choice Questions in the Study Guide
•Do the problems in the review sheet which will be handed out
•Attend the review session
•Test each other in study groups.
Micro Principles
Spring 2002
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Students will be evaluated based upon 2 midterm exams (100 points each), a final (120 points), homeworks and
participation (20 points), and policy briefs (60 points @ 15 points each). Make-up exams will be given at the
discretion of the instructor only in the event of a serious medical or personal emergency. Homeworks will be
assessed on a check, check plus and minus system.
Current economic issues form an important part of this course. Therefore, you are required to read The
New York Times on a daily basis. Order forms are available in the book store or the paper can be read at
www.nytimes.com Information in The New York Times is subject to examination. In addition to the readings in
your textbook, your syllabus is full of live electronic links. They are selected from a wide range of perspectives,
form ultra conservative to the far left. Many advocate a particular position; read between the lines. Several are
from U.S. government sources—they too have their own bias. One goal of this course is to make you a more
sophisticated reader of popular economic policy positions.
Your policy briefs will involve the use of the internet and spreadsheets to locate and present data
in support of a policy argument. Consult the workshops in computer services for excel sessions if you are not
proficient.. Late briefs (after the assigned class day) will not be accepted. Each policy brief is worth 15 points. I
will be using e-mail as a means of communicating with you. I expect that you will check your mail as part of class
preparation. I try to reply to email queries you might have promptly; if I haven’t responded to an email within 48
hours, please send it again as you may have fallen out of my visual in-box. You must submit your homeworks and
policy briefs in hard copy; I am not a printer. It is your responsibility to retain an electronic copy of your work in
the event that a paper or grade is missing until you receive your course grade. Back up all your work frequently—
both floppy disks and hard drives. Computer crashes are usually only fatal when you have been careless or lazy in
backups.
While computers provide a new tool for economists, they also make cheating easy. While I
encourage you to help each other with the mechanics of a given program (e.g. how does one create a two variable
graph ?) and to study together (e.g. why is profit maximization at MR = MC?), copying another student's work
either by hand or by computer is considered cheating and you will fail that assignment, receiving zero points.
Thus, taking another student's review sheet and zeroxing it straight out is cheating; preparing for an exam in study
groups is not. Sitting side by side in the computer room and helping each other with difficult points is encouraged;
sitting at the same computer and running two copies of the assignment even if you both worked on it is considered
cheating unless this is designated as a group assignment.
I do not formally take attendance. However, I do take note of your participation and you can’t participate if
you are absent. Participation and attendance is particularly critical in case classes; by design you learn from
each other. If you must miss any class, I expect the courtesy of a phone message or email explaining why.
Given the contemporary nature of this course, many of the reading are either from recent journal articles or
electronic sources. Electronic addresses have been placed in this syllabus. It is suggested that you retrieve these
articles in advance of the required reading. In the event that you are not able to locate them on the web or if hard
copy availability is more convenient or environmentally palatable to you, copies have been placed on reserve in the
library along with the journal articles. Difficulty in accessing web based material is therefore not an excuse for
being unprepared for class.
A tip in accessing web-based information: Sometimes I am denied access when using a full address. (Maybe
someone in our class can explain why.) When I can not open something like
Micro Principles
Spring 2002
page 3
www.brook.edu/comm/PolicyBriefs/pb051/pb51.htm I revert to the “front door” of the institutional website and
begin at www.brook.edu and then try to find something on the page that looks like Policy Briefs or consult a
search engine within that website.
Economic Fundamentals
Tuesday February 5
Introduction to Key Concepts; Review of Graphs--Chapter 1
(The less mathematically talented should carefully review appendix)
Wednesday February 6
Chapter 2
The Economic Problem: You Can't Always Get What You Want
The Budget and the Economy, Senate Committee on the Budget
January 29, 2002 , Peter Orszag, Senior Fellow, Economic Studies
http://www.brook.edu/views/testimony/orszag/20020129.pdf
What tradeoffs can you identify in the Bush budget?
Thursday February 7
The Structure of the U.S. Economy--Chapter 3
Government v. the Market: The Legacy of Adam Smith
Robert Heilbroner, The Worldly Philosophers “The Wonderful World of Adam Smith” (Reserve)
For excerpts of Adam Smith's writing, http://www.adamsmith.org/smith/quotes.htm
Tuesday, February 12
Demand, Supply and Market Equilibrium--Chapter 4
Wednesday, February 13 Discussion Section: Gasoline prices
What factors affect the supply and demand for gasoline prices? Please come to class with a list of
the key factors. Do you think that gasoline is properly priced?
http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2001/falling_mogas/falling_mogas.html
http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/primer_on_gasoline_prices/html/petbro.
html
http://api-ec.api.org/filelibrary/ACF23F.pdf
http://api-ec.api.org/about/index.cfm?bitmask=001002001000000000
Thursday February 14
Supply and Demand Continued
Tuesday February19
Elasticity--Chapter 5
Wednesday, February 20 Discussion Section, catch up
Thursday, February 21
Household Behavior and Consumer Choice--Chapter 6
Tuesday, February 26
The Foundations of Producer Decision Making--Chapter 7
Wednesday, February 27 Discussion Section
Numbers Matter Policy Brief #63—July 2000 by Barry P. Bosworth and Jack E.
Triplett http://www.brookings.org/comm/policybriefs/pb063/pb63.htm
Productivity statistics for the U.S.
http://www.bls.gov/news.release/prin2.nr0.htm
Some international comparisons http://www.bls.gov/flshome.htm
Micro Principles
Spring 2002
Thursday, February28
Short-run Costs and Output Decisions--Chapter 8
Tuesday March 5
Long Run Costs and Output Decisions--Chapter 9
Wednesday, March 6
Review Session
Thursday, March 7
page 4
Exam 1
Tuesday, March 12
Input Markets: Land, Labor and Capital--Chapters 10 & 11
Wednesday, March 13
Discussion section Labor
A Global Strategy for Labor Jeff Faux , http://epinet.org/ go under viewpoints,
for this speech given at the 2002 world social forum in Porto Alegre, Brazil held
on January 30 - February 4, 2002.
If you are interested in comparative statistics for other countries, consult
http://www.globalpolicynetwork.org/data/index.html
Thursday, March. 14
General Equilibrium and Perfect Competition--Chapter 12
Tuesday, March 19
Monopoly--Chapter 13
Public Teams, Private Profits How pro sports owners run up the score
on fans and taxpayers By D. Stanley Eitzen
http://www.dollarsandsense.org/2000/0300eitzen.html
Thursday, March 21
Monopolistic Competition --Chapter 14, first part
Week of April 2-4
Professional Travel
Tuesday, April 9
Oligopoly—Chapter 14, second part
Wednesday, April 10
Review
Thursday, April 11
Tuesday, April 16
Exam #2
Antitrust and Regulation--Chapter 15
Guide To Antitrust Resources On The Web
http://www.antitrustinstitute.org/links.cfm
Jonathan B. Baker, “Can Antitrust Keep Up? Competition policy in high-tech
markets, Brookings Review,” Winter 2001 Vol. 19 No. 1: 16-19
http://www.brook.edu/press/REVIEW/winter2001/baker.htm
Does the Enron scandal indicate a need for re-regulation?
http://usgovinfo.about.com/library/weekly/aa011402a.htm
(Current events roundup)
Wednesday, April 17
Discussion: Is the Microsoft Settlement appropriate?
Economists discuss Microsoft pros & cons
http://www.aei.brookings.org/publications/topics.asp?topicID=10
Microsoft Case, http://www.stern.nyu.edu/networks/ms/top.html
Micro Principles
Spring 2002
page 5
Litan, Nordhaus and Noll Harshly Criticize Proposed Microsoft
Settlement
http://www.aei.brookings.org/publications/abstract.asp?pID=201
Bob Hahn Argues that Microsoft Settlement is Preferable to More
Litigation
http://www.aei.brookings.org/publications/abstract.asp?pID=202
(If you get stuck go to Brookings, then to the joint Brookings AEI site
for regulation.)
Big friendly giant: Is Microsoft a Monopoly? The Economist,
http://www.economist.com/editorial/freeforall/library/index_library.html
scroll down to the microsoft case.
Robert A. Levy, “Microsoft: A Tale of Two Markets,”March 8, 1999 CATO
Institute, http://www.cato.org/dailys/03-08-99.html
Policy Brief #1:Anti-trust: Is the Microsoft settlement good for society?
Thursday, April 18
Externalities and the Environment--Chapter 16
Donald F. Kettl, " Environmental Policy: The Next Generation" Brookings,
http://www.brook.edu/comm/PolicyBriefs/pb037/pb37.htm
by Jonathan B. Wiener, “Toward Sustainable Governance,” Policy
Matters 00-8. June 2000.
http://www.aei.brookings.org/publications/policy/policy_00_08.asp
On the failure of market failure,
http://www.cato.org/pubs/regulation/regv22n2/mktfailure.pdf
Tuesday, April 23
The Market and the Environment
A global consensus defines climate change as a significant potential
threat to the world's well-being. How and when should global actors
address the threat? What role should market mechanisms play? What
is the alternative to Kyoto?
Climate Change: An Agenda for Global Collective Action October
2001 Joseph E. Aldy, Harvard University, Peter R. Orszag, Senior
Fellow, The Brookings Institution, and Joseph E. Stiglitz, Columbia
University http://www.brook.edu/views/papers/orszag/200110.htm
Raymond J. Kopp and Jennifer B. Thatcher,
The Weathervane Guide to Climate Policy An RFF Reader
http://www.weathervane.rff.org/misc/weathervaneguide/index.htm
World Resources Institute, Climate Change Resource page
http://www.wri.org/climate/business.html
United Nations Framework Convention on Climate Change homepage
http://www.unfccc.de/resource/index.html
Environmental Media Services
Micro Principles
Spring 2002
page 6
http://www.ems.org/sub_climate.html
Sustainable energy and Economy Network
http://www.seen.org/
Policy Brief # #2: What are the next steps to follow on the Kyoto
Protocol? What role should economic incentives play?
Thursday, April 25
Income Distribution and Poverty--Chapter 17
Barbara R. Bergmann, “Deciding Who’s Poor”
http://www.dollarsandsense.org/2000/0300bergmann.html
CEO pay 2001—executive excess
http://ufenet.org/press/2001/exec_excess_2001_pr.html
http://ufenet.org/press/2001/EE2001.pdf
or
Poverty thresholds http://www.census.gov/hhes/poverty/threshld.html
Tuesday, April 30
Is welfare reform working?
Lisa E. Oliphant, Four Years of Welfare Reform: A Progress Report
Cato Policy Analysis No. 378, August 22, 2000
http://www.cato.org/pubs/pas/pa-378es.html
Welfare Reform and Beyond, selections from The Brookings Website
http://www.brook.edu/wrb/wrb_hp.htm From Welfare to Work: What
the Evidence Shows WR&B Policy Brief, Robert A. Moffitt, 1/28/02
Heather Boushey, The effects of the Personal Responsibility and Work
Opportunity Reconciliation Act on working families, Testimony Given
Before The Committee On Education And The Workforce Of The U.S.
House Of Representatives On September 20, 2001. http://epinet.org/
scroll to viewpoints. You may choose to consult other pieces on
welfare policies on this site.
Pamela Loprest , “Families Who Left Welfare: Who Are They and
How Are They Doing?”
http://www.urban.org/news/focus/focus_welfare.html
Policy Brief #3: Does welfare reform meet the Rawlsian criteria for
economic justice?
Wednesday , May 1
International Trade Theory --Chapter 21
For trade stats, go to http://www.whitehouse.gov/fsbr/international.html
C. Fred Bergsten, - The global trading system and the developing countries in
2000, Working Paper 99-6 –May 1999, Institute for International Economics,
http://www.iie.com/CATALOG/WP/1999/99-6.htm
Micro Principles
Spring 2002
page 7
Sarah Anderson and John Cavanagh, Institute for Policy Studies, The Rise of
Corporate Global Power, December 2000 http://www.ipsdc.org/downloads/Top_200.pdf
Global Trade Watch http://www.citizen.org/trade/
International Trade Commission http://www.ita.doc.gov/
Reports on US trade
http://www.ita.doc.gov/td/industry/otea/ustrade.html
Thursday, May 2
Trade Policy I: Protectionism
Significant trade barriers remain after Uruguay Round, says new WTO
secretariat study
http://www.wto.org/english/news_e/pres01_e/pr222_e.htm
Freedom To Trade: Refuting the New Protectionism (select a few)
http://www.freetrade.org/pubs/freetotrade/freetrade.html
Crumbling Credibility: Why the Farm Bill Endangers U.S. Agricultural
Exports by Sara J. Fitzgerald
http://www.heritage.org/library/backgrounder/bg1509.html
Gary Clyde Hufbauer and Erika Wada , “Steel Quotas:
A Rigged Lottery,” International Institute for Economics Policy
Briefs, http://www.iie.com/NEWSLETR/news99-5.htm
For information on US Trade Policy go to
http://www.state.gov/www/issues/economic/trade.html
http://www.ustr.gov/
Tuesday, May 7
Trade Policy II: The WTO
“The year 2002 will be critical for international trade. Following the
September 11 attacks on the World Trade Center and the Pentagon, the
international community has generated momentum for global trade
liberalization by agreeing at the November 2001 WTO ministerial
meeting in Doha, Qatar, to launch a new round of negotiations.”
http://www.iie.com/topics/globalization/hotglobal.htm Who wins and
loses in the new round of trade negotiations?
Dealing With Labor And Environmental Issues In Trade Promotion
Legislation by Kimberly Ann Elliott, Research Fellow
Institute for International Economics July 2001
http://www.iie.com/policybriefs/news01-8.htm
What is the WTO?
http://www.wto.org/
http://www.wto.org/english/tratop_e/tratop_e.htm survey key topics on the
WTO agenda
Jeffrey J. Schott and Jayashree Watal, Decision-Making In The WTO, March
2000 http://www.iie.com/policybriefs/news00-2.htm
Micro Principles
Spring 2002
page 8
Marcus Noland, Senior Fellow at the Institute for International
Economics, Understanding The World Trade Organization February
2000
http://www.iie.com/TESTMONY/wtonoland.htm
C. Fred Bergsten, The Next Trade Battle and Gary Clyde Hufbauer
World Trade After Seattle: Implications for the United States, both at
http://www.iie.com
C. Fred Bergsten , Fifty Years Of The Gatt/WTO: Lessons From The
Past For Strategies For The Future
http://207.238.152.36/TESTMONY/geneva.htm
Wednesday, May 8
Discussion if needed
Thursday, May 9
Trade Policy III: Trade Integration: FTAA?
The ABCs of Free Trade Agreements
By The Dollars and Sense Collective www.dollarsandsense.org
Gary C. Hufbauer, Reginald Jones Senior Fellow, “Nafta In A
Skeptical Age: The Way Forward,” Institute for International
Economics July 2000 http://www.iie.com/TESTMONY/gchnafta.htm
Hemispheric Free Trade: The Possibilities September, 2001
http://www.csis.org/simonchair/FTAA010913.pdf
Sidney Weintraub, “Behind The Trade Issues Facing President Bush,”
Issues In International Political Economy, January 2001, Number 13,
http://www.csis.org/americas/pubs/weintraubnewsletters010100.html
Sidney Weintraub , The Remarkable Development of U.S.-Mexico
Trade, May 31, 2000,
http://www.csis.org/simonchair/usmexico050100.html
Sarah Anderson, Seven years Under Nafta, http://www.ipsdc.org/downloads/NAFTA%20at%207.pdf
Policy Brief #4: Is an FTAA 2005 in the interest of the U.S.?
Final Exam as Scheduled by the Registrar, no exceptions.