Module Overview

The main objective of this module is to understand microeconomics concepts and principles and their application in the formulation of public policy.

The course is organized in four parts. The basic demand and supply framework of microeconomic analyses is presented in part 1 where we illustrate how the market mechanism could lead to economic efficient outcomes.   In part 2, we derive the market demand and supply to gain insights into the nature of decisions made by consumer and producers. Departures from the competitive market structure are analysed in part 3.   The presence of market power, its impact on pricing and efficiency of resource allocation will be examined. In the final part, we look at how market inefficiencies can arise due to the presence of imperfect information, the special characteristics of public goods, and the incidental benefits and costs imposed on people not directly involved in an economic activity.  Throughout the course,  focus of study will be on the policy interventions that would lead to more efficient resource allocation outcomes and improved welfare of society.

PART-1: INTRODUCTION: MARKETS AND PRICES

Topic 1: Basic Economic Concepts and Application to Policy

1.1  Basic Concepts

1.2  Demand and Supply

1.3  Consumer and Producer Surplus

1.4  Market Equilibrium and Efficiency

1.5  Impact of Price Controls

1.6  Impact of  Taxes and Subsidies

1.7  Impact of Import Quotas and Tariffs

(Reading: P&R Chapter 1, 2 & 9 )

PART-2: CONSUMERS, PRODUCERS AND COMPETITIVE MARKETS

Topic 2: Consumer Behaviour and Market Demand

2.1  Consumer Preferences and Budget Constraints

2.2  Consumer Choice

2.3  Income and Substitution Effects

2.4  Individual and Market Demand

2.5  Network Externalities

2.6  Behavioural Economics

(Reading: P&R Chapters 3, 4 & 5)

Topic 3: Production and Costs

3.1  Production Functions

3.2  Marginal and Average Products

3.3  Returns to Scale

3.4  Costs in the Short Run and Long Run

3.5  Short-Run and Long-Run Cost Curves

 (Reading: P&R Chapters 6-7)

Topic-4: Competitive Supply Competitive Markets

4.1  Conditions of Perfect Competition

4.2  Profit Maximization and the Competitive Firm

4.3  Short-Run Supply Curve

4.4  Long-Run Supply Curve

(Reading: P&R Chapters 8-9)

PART-4: MARKET STRUCTURES

Topic 5: Monopoly Power and Pricing

5.1  Monopoly Output and Price Decision

5.2  Sources of Monopoly Power

5.3  Social Cost of Monopoly

5.4  Price Discrimination

(Reading: P&R Chapters 10; Frank Chapter 12)

 Topic 6: Monopolistic Competition and Oligopoly

6.1  Monopolistic Competition

6.2  Oligopoly

6.3  Game Theory and Competitive Strategy

(Reading: P&R Chapters 11-12; Frank Chapter 13 )

PART-4 MARKET FAILURE AND THE ROLE OF GOVERNMENT

Topic 7: Markets with Asymmetric Information

7.1  Asymmetric Information

7.2  Self Selection and Moral Hazard

7.3  Principal Agent Problem

     (Reading: P& R  Chapter 17; Frank Chapters 6 & 8)

Topic--8: Externalities, Public Goods and Role of Government

8.1  Externalities

8.2  Correcting for Externalities

8.3  Property Rights

8.4  Public Goods

9.1  Case for Government Intervention

(Reading: P & R Chapter 18; Frank Chapter 16 )

MODES OF TEACHING LEARNING AND ASSESSMENT

The modes of teaching and learning will form a mixture of lectures, open discussions and seminars.  Course participants will also be required to work in teams for selected class discussions and the final group assignment and presentation.

The assessment for this course will involve 2 individual assignments, 1 group assignment, a mid-term examination and a final examination. The grades will be distributed as follows:

• 2 Individual Assignments (5% each)                  10%
• 1 Group Assignment                                         10%
• Mid-Term Examination:                                    30%
• Final Examination:                                             50%

The due dates for the assignments are:

1^st assignment                           : 5 September 08

2^nd assignment                          : 17 October 08

Group assignment                     : 7 November 08

Main Text:

Pindyck, R. s., Rubinfeld, D, L. and Koh, W, Microeconomics: An Asian Perspective, Prentice Hall, Sixth Edition 2006. (P & R)

Supplementary Reference Texts (These are held in our library)

Frank, R. H., and Bernanke, B, S., Principles of Economics, McGraw-Hill, (International Edition) 2006  (F & B)

Frank, R. H., Microeconomics and Behavior,7^th edition McGraw-Hill, (International Edition) 2007. (Frank)