Intermediate Microeconomics
Department of Economics, Ave Maria University
1011 Academic Building, 10:10 – 11:50, TR, Spring 2011
Professor Joseph Burke
Phone: (239) 280-1613
Email: joseph.burke@avemaria.edu
Office: 103 Newman Hall
Office Hours: 11:00 to 12:00 Fridays
Course Code: Econ 302
Prerequisites: Econ 202
Credits: 4
Course Description
This course deepens students’ understanding of microeconomic theory, building on the
foundation they received in Principles of Microeconomics. This course will approach the
theories of the consumer and the firm through the use of economic models. Students will learn
how to express economic models in mathematical terms and how to then manipulate those
models using algebra and calculus. Calculus is not a prerequisite, but students will learn some
calculus during the semester and will benefit from having previously taken a calculus course.
The models covered in the course fall into eight classes: utility maximization, profit
maximization, cost and expenditure minimization, general equilibrium, public goods,
externalities, risk, simultaneous games, and sequential games. The utility maximization and
expenditure minimization models are the basis of the theory of the consumer, and the profit
maximization and cost minimization models are the basis for the theory of the firm. General
equilibrium models describe the interaction of firms and consumers in markets, essential for
understanding Adam Smith’s Theory of the Invisible Hand. Models of public goods and
externalities provide a framework for much economic policy, as risk models do for insurance
markets, and games are the foundation for understanding oligopolies and imperfect competition.
The approach to the material in this class is meant to both deepen students’ understanding of
microeconomics and introduce them to the techniques of modeling. For each class of models, the
discussion begins with a simple example of a model in the class. Students are taught how to
manipulate models with algebra and calculus and calculate measures related to the models.
Intermediate Microeconomics is essential to the economics program at Ave Maria
University. Building on the foundation they received in their Principles course, this course will
teach students the fundamental models of microeconomics that constitute the main part of
economic theory. They will also learn how to manipulate these models, which will help them
explain and predict economic behavior and make effective arguments. Additionally, these skills
will be necessary for students who intend to do academic research. Like Principles of
Microeconomics, this course will also touch on Catholic social teaching, as conflicts between
economic theory and Catholic teaching will be identified where they occur.
Expected Outcomes for Student Learning
1. This course will develop students’ knowledge of economic terminology and theory.
Students should know the behavioral assumptions economics makes about consumers and
firms, i.e. consumers behave so as to maximize their utility and firms behave so as to
maximize their profit. They should be able to define and graph two-dimensional
production functions, budgets, indifference curves, and production possibility frontiers.
Students should be familiar with the basic models of economics: the utility maximization,
profit maximization, cost minimization, and expenditure minimization problems.
Students should be able to define Pareto Optimality. Students should know the content of
the first and second welfare theorems, the Stolper-Samuelson Theorem, the Rybczynski
Theorem, and the Factor Product Equilization Theorem. They should know what
externalities and public goods are, and know the content of the Coase Theorem. Students
should know the basic model of risk and insurance, as well as the associated problems of
adverse selection and moral hazard. Students should know what a game is, and the
difference between sequential and simultaneous games, and be able to define Nash
equilibrium.
2. This course will also develop students’ ability to use economic theory to explain and
predict economic phenomena. Using the basic models of economics, students should be
able to demonstrate the effects of changes in prices or income on quantity demanded, and
changes in price on quantity supplied. They should also be able to illustrate these effects
graphically and explain them in words. Students should also be able to apply the various
general equilibrium and trade theorems in order to predict the consequences of policy
changes. Students will also be expected to be able to explain economic outcomes using
the basic theories of risk, externalities, public goods, and oligopoly.
3. This course will also develop students’ ability to make economic arguments and pursue
economic research. The topics are taught at a fundamental level, emphasizing the role of
models, which are the basis of economic arguments and research. Students will learn the
basic elements of models, how they are constructed, how they are manipulated, and how
they are solved. They will learn how to translate English into mathematical equations,
form a Lagrangian, take the derivatives of the Lagrangian, solve the system of first-order
conditions to get a solution to a model, and analyze properties of the solution.
Readings
Nicholson, Walter, and Christopher Snyder, Intermediate Microeconomics and Its Application,
Tenth Edition, Mason, OH: Thomson South-Western, 2007.
Lectures and Attendance
Lectures will be open to participation from students. Students are encouraged to ask
questions and contribute to discussions. Attendance is mandatory, and quizzes and attendance
will count for 10% of the grade.
Office Hours
Students are welcome to stop by and discuss philosophy, theology, history, literature, culture,
politics, mathematics, The Office, or microeconomics whenever I am in my office. As a rule, you
should come to my office whenever you have worked on a problem for half an hour or more and
still have not found the solution. It makes no sense to spend hours working on a problem by
yourself when you could solve it in fifteen minutes with me; those who persist in doing so show
poor economic reasoning skills.
Homework
Homework will be regularly assigned, and due dates are given on the course schedule.
Homework will count for 40% of the grade for the course.
The late policy for homework is as follows: homework is considered late if it is submitted
past 5pm on the due date, and late homework will be penalized 5% per day. For the purposes of
this policy, days end at 5pm and Saturday, Sunday, and Monday are considered a single day.
Quizzes
Short quizzes will be occasionally given throughout the course to make sure students are
doing the reading. Economics is learned through reading the book, hearing the lectures, and
doing the homework. If a student is not doing the reading, then he is more likely to have more
difficulty following and comprehending the lectures. Quizzes and attendance will count for 10%
of the grade for the course.
Exams
There will be one midterm and one final exam in the class. Both exams will be in-class
exams. The midterm will cover material from the first half of the course, and the final will be
cumulative. The midterm will count for 20% and the final for 30% of the student’s grade for the
course.
Students with Disabilities
Any student who feels he or she may need an accommodation based on the impact of a
disability should contact me privately to discuss your specific needs. Please also contact the
Counseling Services Office to coordinate reasonable accommodations for students with
documented disabilities.
Grading
Attendance and quizzes
Homework
Midterm
Final
A
B+
B
B
BC+
10%
40%
20%
30%
Above 92.5%
90 to 92.5%
87.5 to 90%
82.5 to 87.5%
80 to 82.5%
77.5 to 80%
C
CD+
D
DF
72.5 to 77.5%
70 to 72.5%
67.5 to 70%
62.5 to 67.5%
60 to 62.5%
Below 60%
Evaluation Strategies
1. Quizzes and participation in lectures will be used to evaluate students’ knowledge of the
course material. Quizzes allow for a direct assessment of students’ progress, and
participation for an indirect assessment, which can be seen, for instance, in the quality of
questions asked during lecture. Quizzes and participation will be used in conjunction with
the homework to evaluate their progress in the course.
2. Students’ knowledge of important topics will be evaluated through homework. Nearly
every major topic in the course will have a corresponding homework assignment: sets,
polynomial calculus, utility maximization, expenditure minimization, profit
maximization, cost minimization, general equilibrium, the Stolper-Samuelson Theorem,
the Rybczynski Theorem, the Factor Product Equilization Theorem, public goods,
externalities, game theory, and oligopoly models.
3. The midterm will test the student’s knowledge of material from the first half of the
course. It will cover consumer and producer theory, specifically the utility maximization,
expenditure minimization, profit maximization, and cost minimization problems.
4. The final will test the student’s knowledge of all topics covered in the course. The final
will be cumulative, and the student is expected to have mastered the material by the end
of the course.
Intermediate Mircoeconomics Schedule
13-Jan
15-Jan
18-Jan
20-Jan
22-Jan
25-Jan
27-Jan
29-Jan
1-Feb
3-Feb
5-Feb
8-Feb
10-Feb
12-Feb
15-Feb
17-Feb
19-Feb
22-Feb
24-Feb
26-Feb
1-Mar
3-Mar
5-Mar
8-Mar
10-Mar
12-Mar
15-Mar
17-Mar
19-Mar
22-Mar
24-Mar
26-Mar
29-Mar
31-Mar
2-Apr
5-Apr
7-Apr
9-Apr
12-Apr
14-Apr
16-Apr
19-Apr
21-Apr
23-Apr
26-Apr
28-Apr
W
F
M
W
F
M
W
F
M
W
F
M
W
F
M
W
F
M
W
F
M
W
F
M
W
F
M
W
F
M
W
F
M
W
F
M
W
F
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F
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F
M
W
Introduction; English, notation, and graphs; sets; consumption sets
Consumption sets; no money illusion; production possibility sets
Production possibility sets: multiple inputs and outputs; utility function
Utility function; indifference curves
Economics Knowledge Survey; terminology; profit
Univariate polynomial calculus; cost minimization problem
Revenue maximization problem
Profit maximization; competitive assumption; short and long-run
Monopoly; marginal revenue/cost; markup and demand elasticity
Review of profit, revenue, cost problems; multivariate calculus
Profit maximization with multiple outputs
Constrained optimization
Utility maximization; Cobb-Douglas
Income effects
Substitution effects
Slutsky equation
Utility and Expenditure Problems
Marshallian and Hicksian demands: homogeneity, symmetry, slopes
Profit, Revenue, and Cost Problems
homogeneity, symmetry, slopes; GDP function
Monopoly
Review
Midterm Exam
Spring Break
Spring Break
Spring Break
Sources of Market Power
General Equilibrium
Rybczynski Theorem
Stolper-Samuelson Theorem
Factor Price Equalization Theorem
Pattern of Trade
First and Second Fundamental Welfare Theorems
Present Value
Easter Break
Easter Break
Capital and Time
Probability, Expected Utility Hypothesis
Options and Risk
Diversification, Moral Hazard, Adverse Selection
Externalities
Public goods provision
Coase Theorem
Simultaneous games
Sequential games
Industrial organization
Writing Notes
1.
2.
3.
4.
5.
6.
7.
8.
Be clear.
Be brief.
Use correct grammar.
Vary sentence structure.
Be entertaining. Use humor when appropriate.
Choose a topic you in which you are interested.
Avoid the passive voice whenever possible.
Liberally consult the Writing Center’s Handbook of Writing and Strunk and White.
(Strunk, William Jr. and E. B. White, The Elements of Style Fourth Edition, New York:
Longman, 2000.)
9. Cite all sources.
10. Do not plagiarize!
11. Do not worry about writing poorly. Some of the worst writers in the country make
millions of dollars writing novels.
12. Do not worry about rejection or failure. All writers have these fears. If you do not do
something for fear rejection, then you will never do anything.
Learning Strategies
1. Preview the material before class. Skim the chapter, looking at the charts and graphs and
reading the bold and highlighted terms.
2. Come to class.
3. Review the material immediately after class. Spend 10 minutes remembering what was
discussed in class and writing notes to yourself.
4. Read the textbook.
5. Start your homework on the day it is assigned. Don’t look for help until you have spent at
least 30 minutes trying to solve a problem.
Bloom’s Taxonomy
Learning is a game. The goal is to climb to the top of the pyramid.