2015/2016, Semester 2

Lee Kuan Yew School of Public Policy (Lee Kuan Yew School Of Public Policy)

Modular Credits: 4

C

Midterm 35%

Non-Cumulative Final Exam 35%

- Should be well-informed about the theory of: supply and demand; consumer and firm behavior; and welfare analysis;

- Will understand how fundamental economic tools and reasoning are used to analyze public policy decisions;

- Will have gained an appreciation for how economic analysis is relevant for understanding the world around us.

This course does not require you to be proficient in mathematics, but it is assumed that you have a working knowledge of basic calculus (i.e., the use of derivatives) & algebra (i.e., solving systems of equations) and that you are comfortable with equations and graphical analysis. We will do a brief review of basic calculus and algebra as found in the mathematical appendix (pp. 621-642) in Besanko & Braeutigam.

Microeconomics is at the very foundation of much public policy analysis (e.g. how environmental regulation impacts electricity prices; how worker training programs affect wages) and as such will be one of the most important classes you take in this program. It may may also be one of the most difficult. Mastering this course will be of tremendous value to you — not only in the program but also in your careers. Some people find the analytical approach taken by economists difficult and challenging to follow. Here are some ideas to keep in mind during the semester to help overcome some of the difficulties and challenges:

- Always attend class and be an engaged active listener – do not just sit and passively listen and take notes.
- Take good notes
- Review your notes immediately after class if at all possible and work with your classmates to fill in any missing gaps (or note questions to ask me during office hours). Also review your class notes before the next class.
- Periodically (e.g., after a problem set, after reading a chapter, after a few lectures) spend some time thinking about what you have learned and try explaining it to your classmates and friends (this is a great way to enhance your friendships!). By simply reflecting on what you have learned and trying to explain it to others can help identify questions and can sharpen your understanding of what we are doing and why we are doing it.
- Try to analyze counter cases as you review the material — if I present an analysis of the effects of

- You should always read the assigned chapter before class and then again after class. Read very slowly with highlighter, pencil and paper in hand — reading economics is much more like reading math than reading a novel. Note that the chapters in the book are very short (and they are designed that way to make it easier for you to assimilate new material), but it should still take a substantial amount of time to work through them.
- The best method for learning the material is by actively using it. You should practice problems on a regular basis. Get together in groups and have one person go to a white board and explain how to solve the problem, while the others take notes and ask questions.
- Do NOT fall behind in this class, new material tends to build on older material, much like a math class and hence trying to play catch-up is very difficult (maybe impossible!).
- Do not procrastinate – start the problem sets early. Then if you have problems (pun intended) you will have time to consult with me and/or your classmates.
- You must be prepared to work quite hard this semester. What you end up getting out of this class is a direct function of the effort you put into it. If you do not like to work hard and push yourself, then we are probably not good matches for one another.

Students in this class should adhere to NUS Honour Code, which can be found at http://www.nus.edu.sg/registrar/adminpolicy/acceptance.html#NUSHonourCode. In addition, the LKY School’s Code of Conduct (http://www.spp.nus.edu.sg/Code_of_Conduct.aspx) lists academic integrity as one of its six important values. Violations of these codes in any form, including cheating in exams and plagiarism, will not be tolerated and will immediately lead to the student getting zero marks and follow-up action.

Plagiarism includes copying all or any part of your classmate’s assignments. To avoid giving the impression that you are passing off other people’s work as your own, you will need to acknowledge conscientiously the sources of information, ideas, and arguments used in your paper. For this purpose, you will use the ‘footnote style’ according to the Chicago Manual of Style, the guidelines for which can be found online at http://www.dianahacker.com/resdoc/p04_c10_s2.html in the companion website for Diana Hacker’s A Writer’s Reference. Please also refer to the handout that was given to you at the Workshop on Plagiarism conducted during the Orientation period.

Use of laptops is discouraged during lectures unless its purpose is related to this course. Instructor reserves the right to ban laptops if their use distracts students. Using cell/smart phones is prohibited during lectures and exams.

- Slope of a function
- Differentiation of a function: Rules of Differentiation and Partial differentiation
- Exogenous vs endogenous variables
- Brief Review of Demand, Supply and Market Equilibrium

- Decisions under certainty: Utility maximization with indifference curves
- Marginal Utility and Marginal Rate of Substitution
- Derivation of individual demand curves

- Individual demand and market demand
- Indirect utility function and Roy’s Identity
- Slutsky Equation: Income and substitution effects
- Inverse demand curves
- Compensated demand functions
- Consumer welfare: Consumer surplus and compensating and equivalent variation
- Labor-Leisure Choice

- Algebra of equilibrium
- Walras' Law
- Pareto efficiency and Welfare Economics
- Fairness

- Production functions
- Profit maximization and cost minimization
- Shephard’s Lemma and Duality

- Factor demands
- Costs: Total, average, and marginal

- Derivation of the supply of labor (
__review B&B ch.5 pp. 152-156__) - Derivation of the demand for labor
- Utility maximization, profit maximization and the equilibrium wage
- Firm and market supply

- Simultaneous efficiency in consumption and production (
__review B&B pp. 565-572)__ - Marginal rate of transformation

- Pure monopoly versus Natural monopoly
- Price Elasticity of Demand and the Profit Maximizing Price
- Welfare loss under monopoly

- Cartel behavior
- Cournout, Stackelberg and Bertrand Equilibria

- Game Theory: Cooperative versus Non-cooperative
- Nash equilibria and the Prisoners Dilemma
- Real World Illustration: International Pollution Control: A Game Theoretic Approach

- Negative and Positive Externalities and Economic Efficiency
- Property Rights and the Coase Theorem
- Efficient Provision of Public Goods
- Free-Rider Problem