Hubert Humphrey School of Public Affairs
Fall 2008
PA 5021: Microeconomics for Public Affairs and Planning I
Instructor:
Maria Hanratty, 251 Humphrey Center, mhanratty@hhh.umn.edu, 625-6500
Office Hours: M 2:30-4:30 or by appointment
Meeting Times:
Lecture MW 9:45-11:00 CSOM 1-127
Lab F 11:15 A.M. - 12:05 HHH 35
Teaching Assistants:
Jessica Drucker, druc0012@umn.edu
M 2:30-3:30 pm; F 8-9:30
John Grill, gril0027@umn.edu
M 11:30-1:00pm; Th 12:30-2:00pm
Course Description:
Welcome to Economics for Policy Analysis I. The primary objective of this course is to
improve your ability to apply microeconomic reasoning to public issues, policies and
programs. It begins with an analysis of economic incentives and their impacts on the
behavior of individual consumers and firms, and shows how these decisions affect market
outcomes. It then moves to an analysis of the consequences of market failure, and
potential policy instruments to offset the impacts of market failure.
This course will help you develop quantitative skills that are essential to assess the
impacts of public policies. It will focus on skills such as understanding the algebraic
representation of graphs, solving for numerical solutions to systems of two equations, and
working with elasticities to predict the impact of shifts in supply and demand curves.
This course is intended for masters’ students in public affairs and planning. Because
much of this material may be new to you, you will need to devote a significant amount of
time to mastering the course material. You should anticipate spending a minimum of 6-10
hours per week outside of class time to the course.
Course Requirements:
Class participation. Although there is no formal grade for class participation, I welcome
your participation in class. Other students clearly benefit when you ask questions, so
please do not be afraid to ask questions when the material is not clear to you.
Homework assignments (15% of class grade). You will receive problem sets nearly
every week. Problem sets will be graded with a check, check minus or check plus.
Problem sets are due in class on the day of the recitation that covers the problem set. If
you cannot make it to recitation, please arrange with the TA to turn in the assignment
before then. You may skip one problem set and still get full credit.
You are strongly encouraged to take these problem sets seriously, as this is the best way
to ensure that you understand the course material.
Students are encouraged to work on homework assignments in groups. However,
students must write up the answers to each problem set in their own words. This is the
best way to ensure that you fully understand the material.
Recitations. In the recitation sections, the teaching assistants will explain the solutions to
the problem sets, and they will clarify any material in class that is unclear to students. If
you have a good grasp of the course material, you are not required to attend recitations, as
long as you arrange to turn in problem sets to the TA.
Short Memo and In-Class Debate (10% of grade): Students will work in groups to
prepare presentations for an in-class debate on a current policy issue. In addition, each
member of the group will write an individual memo, no longer than 3 pages, that
summarizes their position on the issue. The memo will be due one week after the in-class
debate. It will be evaluated on the clarity and quality of its writing, as well as on the
coherence of its economic arguments.
Two Quizzes (20% each; 40% of class grade). The quizzes will cover material presented
in class, problem sets, or in the case presentations.. They typically test both basic
concepts developed in class, as well as your ability to analyze problems like those in your
problem sets. You can assume that the quizzes will not cover material in the text, unless
it is also included in class lectures, cases or problem sets.
Final Exam (35% of class grade). The final exam will be the same format as the quizzes
and problem sets. It will be more heavily weighted towards the material in the final part
of the class, but will draw from material covered throughout the class.
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Special Needs: Students who need special consideration because of any learning or
physical disability should make an appointment to meet with me before the first quiz.
Required Texts:
The textbook for the course is:
Robert S. Pindyck and Daniel Rubinfeld, Microeconomics, 7th edition, Addison Wesley/
Prentice Hall, 2009. (Referred to as P & R in readings)
[Note for the budget-minded student: You can easily get by with an earlier edition of this
text, provided you ensure that you find the appropriate chapters in the text.]
For a good alternate text, you might try:
Robert H. Frank, Microeconomics and Behavior, 7th Edition, McGraw Hill, 2008
Additional readings will also be available on the course web site:
Additional Resources:
There are numerous sources of economic analysis now available on the web, and in the
popular press. I am including a (very limited) set of places you might consult. However,
you are encouraged to read widely, and share your finds with the rest of the class!
For an introduction to the “economic perspective” on popular issues you may want to
look at one of the current economics blogs listed online at:
http://www.26econ.com/economics-blog-directory-ranking/
For recent economic research on policy issues:
National Bureau of Economic Research Working Paper Series, www.nber.org
Brooking Institution, www.brookings.org
Econ Lit Search Engine (on library web site)
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Course Outline and Required Reading:
Following is a tentative outline of the class schedule. If needed, we may cover material
somewhat faster or slower than indicated here. However, we will still hold the quizzes on
dates shown below, unless the class agrees to a change of date.
I. Introduction to Supply and Demand
A. Introduction to Supply & Demand (September 3)
P&R, Chapter 1.
B. Working with Supply and Demand Curves, Elasticities (September 8)
P&R, Chapter 2.
C Policy Applications: Minimum Wage + Rent Control (September 10)
David Card and Alan Krueger, Myth and Measurement: The New Economics of
the Minimum Wage, Princeton University Press, 1995, chapter 2
Neumark, David and William Wascher. “Minimum Wages and Employment: A
Case Study of the Fast-Food Industry in New Jersey and Pennsylvania:
Comment,” American Economic Review, December 2000, pp. 1362-1396.
David Card and Alan Krueger,. ““Minimum Wages and Employment: A
Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply,”
American Economic Review, December 2000, pp. 1397-1420.
D. CASE #1: A Living Wage? (September 15)
II. Consumer Choice:
A. Consumer Choice 1: Preferences & Constraints (September 17)
P&R, Chapter 3
B. Consumer Choice 2: Utility Maximization (September 22)
P&R, Chapter 4
C. Consumer Choice 3: Individual and Market Demand (September 24)
P&R, Chapter 4 (Skip 4.5)
D. Consumer Choice 4: Economics of Subsidies vs Vouchers (September 29)
Thomas M. Fraker, Alberto P. Martini, and James C. Ohls, "The Effect of Food
Stamp Cash-out on Food Expenditures," The Journal of Human Resources, Fall
1995, pp. 633-649
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E. CASE 2: Universal Child Care (October 1)
F. Labor Supply & Impact of Welfare Payments (October 6)
III. Theory of the Firm
A. Physical Production (October 8)
P&R, Chapter 6
B. Short Run Costs (October 13)
P&R Chapter 7
In-Class QUIZ 1 (October 15)
C. Long-Run Costs (October 20)
P&R, Chapter 7.
D.
Competitive Supply in the Short & Long Run (October 22)
P & R Chapter 8
E.
Firm Input (Labor) Demand (October 27)
P & R, Chapter 14.1, 14.2
IV. Competitive Equilibrium Re-examined
A. Equity and Efficiency of Competitive Markets (Oct 29)
P&R, Chapter 9
B. Effects of Government Intervention: Minimum Wage/ Price Support (Nov 3)
P&R Chapter 9
C. CASE 3: Agricultural Price Supports (November 5)
D. Applications to Tax / Subsidy/ Mandates (November 10)
P&R, Chapter 9
V. Market Failure: The Lack of Competition
A. Monopolies & Monopoly Power (November 12)
P&R, Chapter 10 (skip 10.5, 10.6)
B. Monopoly Pricing (November 17)
P&R, Chapter 11 (skip 11.5, 11.6)
C. Case 4: Microsoft Break-up (November 19)
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In-Class QUIZ 2 November 24
D. Oligopoly & Game Theory (November 26)
P&R, Chapter 12, 13
VII. Externalities, Public Goods
A. Externalities: (December 1, 3)
P&R, Chapter 18.1-18.4
B. Case #5: CAFÉ (Automobile Emission) Regulations (December 8)
C. Public Goods (December 10)
P&R, Chapter 18.6-18.7
VIII. FINAL EXAM: 8:00am-10:00am Wednesday, December 17
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PA5021 Class Schedule: Fall 2008
Monday
No class
9/8:
Estimating Supply &
Demand Using Elasticities
9/15:
Case 1:
A Living Wage?
9/22
Consumer Choice 2:
Utility Maximization
9/29
Consumer Choice 4:
Subsidy + Voucher
10/6
Welfare Payments and
Labor Supply
10/13
Firm 2: Short-Run Costs
10/20
Firm 3: Long-Run Costs
Wed
9/3
Intro to Supply & Demand
9/10
Applications
(MW/ Rent Control)
9/17
Consumer Choice1:
Preferences & Constraints
9/24
Consumer Choice 3: Effect
Price/ Income changes
10/1
Case 2:
Universal Child Care
10/8
Firm 1: Production in Short
& Long Run
10/15
In-Class QUIZ 1
10/22
Firm 4: Supply in SR / LR
10/27
Firm 5: Input (Labor)
Demand
10/29
Equil 1: Equity and
Efficiency of Markets
11/3
Equil 2: Applications
to min wage/price support
11/10
Equil 3: Applications to
tax/subsidy / mandate
11/17
Monopoly 2: Monopoly
pricing, antitrust
11/24
QUIZ 2 in Class
12/1
Externality Part 1
12/8
Case 5: CAFÉ Standards
11/5
CASE 3: Agricultural
Price Supports
11/12
Monopoly 1:
11/19
Case 4: Microsoft
11/26
Game Theory
12/3
Externality Part 2
12/10
Public Goods
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Friday
9/5
Math Review
9/12
Problem Set 1 Due:
(S&D basics)
9/19
Problem Set 2 Due:
(Supply & Demand Applic)
9/26
Problem Set 3 Due:
(Finding optimal consumption)
10/3
Problem Set 4 Due:
(Subsidy / Vouchers)
10/10
Problem Set 5 Due:
Labor Supply / Welfare
10/17
10/24
Problem Set 6 Due:
Short run prodn/costs
10/31
Problem Set 7 Due:
Long run production/costs,
Input demand
11/7
Problem Set 8 Due:
Price support / min wage
11/14
Problem Set 9 Due:
Tax / subsidy /mandate
11/21
Problem Set 10 Due
Monopoly/ Monop Power
THANKSGIVING
Problem Set 11 Due:
Externality / Public Goods