Economics 251: Price and Allocation Theory
Fall 2003
Professor William M. Gentry
Fernald 3
597-4257
wgentry@williams.edu
Office hours:
Wednesday 2:00 - 3:30 PM,
Tuesday 10:00 am – Noon,
and by appointment
Course objectives:
This course covers the tools and concepts of intermediate microeconomic theory. Building on the
microeconomic foundations learned in introductory classes, we will develop models to analyze the
decisions of consumers, the behavior of firms, and the functioning of markets. These models form the
core of neoclassical economic theory, and are the basis for economic analyses of market equilibrium,
efficiency, and individual and social welfare. Thus understanding them is important for more advanced
work in economics. An important objective of the course is that you learn to apply the theoretical
principles to actual economic situations. Consequently, we will use the tools and concepts we develop
to analyze a variety of issues of current economic and policy interest. These tools are also useful in
personal and business decision making.
Prerequisites:
Econ 110 and Math 103 (or its equivalent) OR
Econ 101, any 200-level economics course, and Math 103 (or its equivalent).
Textbook:
The required book for the course is Microeconomics (third edition) by Jeffrey M. Perloff. Reading
assignments are listed on the schedule below, and should be completed before the class in which they
will be discussed. There is no course packet, but I will occasionally hand out articles in class (or put
them on the website) that illustrate the ideas discussed in the course.
Course website: Announcements, problem sets, solutions, and other class materials will be posted on
the course website at http://blackboard.williams.edu.
Grading:
Grades will be based on problem sets, two midterm exams, and a final exam (which will be cumulative).
Your overall grade will be determined according to the following scheme:
Participation
5%
Problem sets
10%
Midterm 1
25%
Midterm 2
25%
Final exam
35%
1
To reward improvement, if your final exam grade is higher than either of your midterm grades
(relative to class average), the weight on your lowest midterm grade will be reduced to 15% and
the weight on the final will be increased to 45%.
2
Policies regarding problem sets:
Problem sets will be due on Fridays by 5 PM, except in weeks in which a midterm exam is scheduled
(a schedule of due dates is given below). They should be turned in to your TA's box in Fernald. You
are encouraged to work with other students on problem sets, however you must write up your answers
on your own, and in your own words. It is a violation of the Honor Code to copy another student's
problem set. Although the problem sets count for only 10% of your grade, completing and
understanding them is crucial to your success on the exams. Late problem sets will not be accepted.
Instead, only the best 7 problem set grades will be counted in determining your final grade. Thus, you
can miss up to 2 problem sets for any reason without any penalty.
Problem Set Schedule
Problem set #
Date distributed:
Date due:
1
Monday, Sept. 8
Friday, Sept. 12
2
Wednesday, Sept. 10
Friday, Sept. 19
3
Wednesday, Sept. 17
Friday, Sept. 26
4
Wednesday, Oct. 1
Friday, Oct. 10
5
Wednesday, Oct. 15
Friday, Oct. 24
6
Wednesday, Oct. 22
Friday, Oct. 31
7
Wednesday, Oct. 29
Friday, Nov. 7
8
Monday, Nov. 10
Friday, Nov. 21
9
Monday, Nov. 24
Friday, Dec. 5
Attendance and class participation:
With the exception of the optional review sessions held before each exam, you are expected to attend
class and to participate in class. The participation portion of your grade will depend on attending class
(on time) and contributing to class through comments and questions.
Exam grading policies:
I grade exams name blind, which I believe increases the impartiality of grading. It also eliminates the
fear that I sometimes hear from students that asking ‘dumb’ questions will hurt their grade because it
affects my opinion of their written work.
If you believe that I have made a mistake in grading your exam, then I will regrade the exam using the
following process. To initiate an exam regrade, you write a memo outlining the issues of debate. I will
consider the issues in your memo and regrade your entire exam.
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Academic honesty:
The Honor Code applies to all work submitted and exams taken in this class. You are encouraged to
collaborate on the problem sets, however as noted above, the work you turn in should be written up
independently. You may also collaborate in studying or preparing for the exams, but the written exam
should be your work alone.
Class schedule and important dates:
There will be some flexibility in when we cover each topic, depending on speed and interest about
specific issues.
Class
Date
Topic
Reading
Introduction and review
1
Fri., 9/5
Introduction and review of supply &
Ch. 1 & 2
demand
2
Mon., 9/8
Applications of supply & demand
Ch. 3, Ch. 4.1 &
The usefulness of elasticity
4.2
Introduction to consumer preferences
Consumer behavior
3
Weds., 9/10
Consumer choice: budget constraints and
Ch. 4.3 & 4.4, app.
maximization
4A & 4B*, Ch. 5.1
Deriving demand functions
& 5.2
4
Mon., 9/15
Applying consumer theory
Ch. 5.3, app. 5A &
5B
5
Weds., 9/17
More on consumer theory
Ch. 5.5 (skim 5.4),
Introduce uncertainty
Ch. 17, pp. 589594
6
Mon., 9/22
Choice under uncertainty and insurance
Ch. 17, pp. 595611 (skip 17.4)
Theory of the firm: production technology & cost structures
7
Weds., 9/24
Production: Technology
Ch. 6, app. 6A &
6B
8
Mon., 9/29
Production: Cost functions
Ch. 7, pp. 182-198,
app. 7A & 7C
9
Weds., 10/1
MIDTERM #1 (covers material through 9/24)
10
Mon., 10/6
Costs and output decisions
Ch. 7, pp. 198-226
Market structure and market interactions
11
Weds., 10/8
Perfect competition: Short run
12
Mon., 10/13
Weds., 10/15
Reading period – no class
Perfect competition: Long run
4
Ch. 8, pp. 227-250,
app. 8B
Ch. 8, pp. 250-269
Class
13
Date
Mon., 10/20
Topic
Competition and policy
Competitive factor markets
Reading
Ch. 9 (skip 9.6),
Ch. 15.1, pp. 516527
14
Weds., 10/22 General equilibrium and market efficiency
Ch. 10
15
Mon., 10/27
Monopoly
Ch. 11, app. 11A
16
Weds., 10/29 Monopolies & factor markets, monopsony, Ch. 15.2-15.4, pp.
and vertical integration
527-550
17
Mon., 11/3
Pricing decisions with market power
Ch. 12, app. 12B
18
Weds., 11/5
Monopolistic competition and oligopoly
Ch. 13, pp. 423427, pp. 461-464,
pp. 426-449
Strategic behavior and externalities
19
Mon., 11/10
Game theory
Ch. 13, pp. 450460, 465-473
20
Weds., 11/12 MIDTERM #2 (covers material through monopolistic competition)
21
Mon., 11/17
Strategy
Ch. 14
22
Weds., 11/19 Asymmetric information
Ch. 19
23
Mon., 11/24
Contracting and moral hazard
Ch. 20, app. 20A
Weds., 11/26
Thanksgiving break – No Class
24
Mon., 12/1
Externalities, property rights, and public
Ch. 18, app. 18A
goods
25
Weds., 12/3
Catch-up and review
FINAL EXAM TO BE SCHEDULED
* Appendices for the chapters are at the back of the book rather than the back of each chapter.
5