ECON 2023-Principles of Microeconomics-Chapter Learning Objectives

Chapter Learning Objectives Principles of Microeconomics Mankiw, 4^th ed, 2007
PART ONE: INTRODUCTION
1. Ten Principles of Economics	· Understand the concept of scarcity and the effect that scarcity has on economic decision-making and the measurement of costs
2. Thinking Like an Economist	· Understand how economists apply the scientific method in their study of economics · Understand the importance and use of models and the role of assumptions in economics · Review the basics of graphing · Understand the difference between positive and normative economic analysis and how that difference relates to economists’ roles as scientists and policy-advisors
3. Interdependence and the Gains from Trade	· Understand the concept of comparative advantage · Understand how trade, based on comparative advantage, increases total welfare
PART TWO: SUPPLY AND DEMAND I: HOW MARKETS WORK
4. The Market Forces of Supply and Demand	· Understand how supply and demand interact in markets to determine price and quantity · Understand how market-determined prices allocate resources · Understand how markets respond to changes
5. Elasticity and Its Application	· Understand the meaning and calculation of elasticity · Understand the determinants of elasticity · Use elasticity to help answer questions about market responses to external changes
6. Supply, Demand, and Government Policies	· Understand how economic models are used to study policy questions · Understand the problems associated with price controls · Understand the effects of a tax or subsidy in a market, including the equivalence of taxing buyers or sellers · Understand what determines how the burden of a tax is shifted between buyer and seller
PART THREE: SUPPLY AND DEMAND II: MARKETS AND WELFARE
7. Consumers, Producers, and the Efficiency of Markets	· Understand how surplus measures the benefits buyers and sellers (and society) receive from participating in markets · Understand why any departure from the market equilibrium decreases surplus · Understand how welfare economics provides positive measurement tools for use in addressing normative questions
8. Application: The Costs of Taxation	· Understand that the cost of $1 of governmental action is more than $1 · Understand the determinants of the cost of taxation · Understand the unique aspects of a land tax and how the issues can be applied in other areas
9. Application: International Trade	· Understand how international trade benefits both the importing and exporting country · Understand how trade restrictions decrease welfare · Understand the problems with the arguments for trade restrictions
PART FOUR: THE ECONOMICS OF PUBLIC SECTOR
10. Externalities	· Understand how certain activities create external effects · Understand how the absence of property rights creates the problems associated with external effects and how there problems can be corrected by the assignment of property rights · Understand why the market ignores these external effects · Understand the market failure associated with externalities and why external effects cause the market outcome to be suboptimal · Understand actions that cause producers and consumers to internalize externalities and how government intervention can sometimes improve on the market outcome · Understand the problems with command and control pollution policies · Understand why we could have excessive pollution control
11. Public Goods and Common Resources	· Understand the concepts of rivalry and excludability · Be able to categorize goods and service by their rivalry and excludability characteristics · Understand how the absence of either rivalry or excludability creates a market failure · Understand how in the absence of either rivalry or excludability, the government may improve on the market outcome
12. The Design of the Tax System	· Understand the size of the public sector in the U.S. in relation to the economy · Understand the sources of revenue for the various levels of government · Understand the primary expenditures of each level of government · Be able to calculate marginal and average tax rates · Understand the equity and efficiency issues associated with various tax structures · Understand the determinants of the incidence of any tax and how some taxes are shifted forwards or backwards
PART FIVE: FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY
13. The Costs of Production	· Be able to calculate both economic and accounting profit, understand the difference between the two, and which one to use in making decisions · Be able to distinguish between explicit and implicit costs and understand sunk costs and why sunk costs are irrelevant for decision-making · Understand marginal product and diminishing marginal product · Understand the calculation of and relationships between fixed, variable, total, and marginal costs and between average total cost, average variable cost, average fixed cost, and marginal cost · Understand the implications of diminishing marginal product for the short-run cost function and for marginal cost · Understand the meaning of efficient scale · Understand long run cost curves, economies of scale, and operating leverage
14. Firms in Competitive Markets	· Understand what economists mean by market structure · Understand the characteristics of a competitive market and how the competitive market model closely resembles many real-world markets · Understand the concept of marginal revenue and be able to apply the tools of marginal analysis to the question of profit-maximization · Understand the firm’s shutdown condition · Understand the firm’s short run output decision and how that leads to the construction of the short-run supply function · Be able to find profit for a firm · Be able to find the short-run market equilibrium price and quantity for a competitive market · Understand how a competitive market adjusts to changes in demand or costs in the short run and the long run · Understand the characteristics of a long-run market equilibrium and why the characteristics must hold · Understand the efficiency of the long run competitive equilibrium
15. Monopoly	· Understand the characteristics of a monopoly · Understand the causes of monopolies · Understand how the monopoly model describes many markets where firms have some but not total monopoly power · Be able to explain the sources of market power for many near monopolies · Understand monopoly demand and be able to calculate marginal revenue for a monopolist · Be able to apply the tools of marginal analysis to the profit-maximizing decision of a monopolist · Be able o compare the monopoly outcome with the competitive outcome · Understand the welfare costs of monopoly and some benefits of monopolies · Understand price discrimination, the potential benefits of price discrimination, and be able to provide examples
16. Oligopoly	· Understand the characteristics of oligopoly · Be able to calculate and explain measures of market concentration · Be able to find both the competitive and collusive outcomes for a duopoly · Understand the typical relationship between relative firm size, market concentration, and the expected market outcome · Understand the types of scenarios that economists study with game theory · Be able to use Nash equilibrium and dominant strategy to find the equilibrium of a game · Understand what the prisoners’ dilemma illustrates and be able to give examples of prisoners’ dilemmas in society · Understand government policies in response to “excess” market concentration
17. Monopolistic Competition	· Understand the characteristics of monopolistic competition · Be able to find the short-run and long-run equilibrium for a monopolistically competitive firm · Be able to compare the efficiency of the long-run competitive outcome with the monopolistically competitive outcome in terms of excess capacity and markup · Be able to explain the benefits of monopolistic competition · Understand and be able to summarize the debates over advertising · Be able to discuss the role of advertising and brand names in providing information for consumers and ensuring quality
PART SIX: THE ECONOMICS OF LABOR MARKETS
18. The Markets for the Factors of Production	· Be able to explain why resource demand is a derived demand · Be able to find and explain the marginal product of labor and the value of the marginal product · Be able to explain the reason for the diminishing marginal product of labor (or any resource) and the negative slope of the value of the marginal product curve · Understand why for a competitive firm, the value of the marginal product is the input demand curve · Understand the effects on input demand (value of the marginal product) of a change in output demand · Understand the effects on input demand (value of the marginal product) of a change in technology · Understand the effects on input demand (value of the marginal product) of a change in the availability of other resources · Understand why labor supply is a trade-off between labor and leisure
19. Earnings and Discrimination	· Understand what determines supply and demand for different types of labor · Understand compensating differentials and the role of compensating differentials in explaining earning differences · Explain the role of education, including both human capital and signaling, in explaining earning differences · Understand the role of natural ability differences in explaining earnings differences · Explain the role of differences in personal effort in explaining earning differences · Understand what actually constitutes labor market discrimination and the portion of wage differentials explained by labor market discrimination
20. Income Inequality and Poverty	· Understand how income redistribution to increase equity may decrease efficiency · Understand the current level of income inequality in the U.S. and abroad and changes in income inequality over time · Understand how the U.S. measures poverty · Understand how the incidence of poverty differs across various demographic groups · Understand some of the problems associated with the typical measures of poverty and income distribution · Explain the various income redistribution programs in the United States · Explain and comment on the arguments for and against income redistribution
PART SEVEN: TOPICS FOR FURTHER STUDY
21. The Theory of Consumer Choice	· Understand how the tradeoffs consumers with scarce income face and how these consumers make decisions and respond to environmental changes · Use the model of consumer choice to explain why the demand curve has a negative slope · Use the model of consumer choice to explain how wages affect labor supply and how interest rates affect household saving decisions
22. Frontiers in Microeconomics	· Be able to provide examples of asymmetric information and why asymmetric information may create market failures · Be able to explain some market and behavioral responses that are attempts to correct for asymmetric information · Be able to explain the primary theories of political economy or public choice · Be able to explain some of the anomalies we observe in human decision making that differ from the predictions of the economic model of rational decision making

Chapter Learning Objectives

Principles of Microeconomics

Mankiw, 4^th ed, 2007

Objectives

PART ONE: INTRODUCTION

· Understand the concept of scarcity and the effect that scarcity has on economic decision-making and the measurement of costs

2. Thinking Like an Economist

· Understand how economists apply the scientific method in their study of economics

· Understand the importance and use of models and the role of assumptions in economics

· Review the basics of graphing

· Understand the difference between positive and normative economic analysis and how that difference relates to economists’ roles as scientists and policy-advisors

3. Interdependence and the Gains from Trade

· Understand the concept of comparative advantage

· Understand how trade, based on comparative advantage, increases total welfare

PART TWO: SUPPLY AND DEMAND I: HOW MARKETS WORK

4. The Market Forces of Supply and Demand

· Understand how supply and demand interact in markets to determine price and quantity

· Understand how market-determined prices allocate resources

· Understand how markets respond to changes

5. Elasticity and Its Application

· Understand the meaning and calculation of elasticity

· Understand the determinants of elasticity

· Use elasticity to help answer questions about market responses to external changes

6. Supply, Demand, and Government Policies

· Understand how economic models are used to study policy questions

· Understand the problems associated with price controls

· Understand the effects of a tax or subsidy in a market, including the equivalence of taxing buyers or sellers

· Understand what determines how the burden of a tax is shifted between buyer and seller

PART THREE: SUPPLY AND DEMAND II: MARKETS AND WELFARE

7. Consumers, Producers, and the Efficiency of Markets

· Understand how surplus measures the benefits buyers and sellers (and society) receive from participating in markets

· Understand why any departure from the market equilibrium decreases surplus

· Understand how welfare economics provides positive measurement tools for use in addressing normative questions

8. Application: The Costs of Taxation

· Understand that the cost of $1 of governmental action is more than $1

· Understand the determinants of the cost of taxation

· Understand the unique aspects of a land tax and how the issues can be applied in other areas

9. Application: International Trade

· Understand how international trade benefits both the importing and exporting country

· Understand how trade restrictions decrease welfare

· Understand the problems with the arguments for trade restrictions

PART FOUR: THE ECONOMICS OF PUBLIC SECTOR

10. Externalities

· Understand how certain activities create external effects

· Understand how the absence of property rights creates the problems associated with external effects and how there problems can be corrected by the assignment of property rights

· Understand why the market ignores these external effects

· Understand the market failure associated with externalities and why external effects cause the market outcome to be suboptimal

· Understand actions that cause producers and consumers to internalize externalities and how government intervention can sometimes improve on the market outcome

· Understand the problems with command and control pollution policies

· Understand why we could have excessive pollution control

11. Public Goods and Common Resources

· Understand the concepts of rivalry and excludability

· Be able to categorize goods and service by their rivalry and excludability characteristics

· Understand how the absence of either rivalry or excludability creates a market failure

· Understand how in the absence of either rivalry or excludability, the government may improve on the market outcome

12. The Design of the Tax System

· Understand the size of the public sector in the U.S. in relation to the economy

· Understand the sources of revenue for the various levels of government

· Understand the primary expenditures of each level of government

· Be able to calculate marginal and average tax rates

· Understand the equity and efficiency issues associated with various tax structures

· Understand the determinants of the incidence of any tax and how some taxes are shifted forwards or backwards

PART FIVE: FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY

13. The Costs of Production

· Be able to calculate both economic and accounting profit, understand the difference between the two, and which one to use in making decisions

· Be able to distinguish between explicit and implicit costs and understand sunk costs and why sunk costs are irrelevant for decision-making

· Understand marginal product and diminishing marginal product

· Understand the calculation of and relationships between fixed, variable, total, and marginal costs and between average total cost, average variable cost, average fixed cost, and marginal cost

· Understand the implications of diminishing marginal product for the short-run cost function and for marginal cost

· Understand the meaning of efficient scale

· Understand long run cost curves, economies of scale, and operating leverage

14. Firms in Competitive Markets

· Understand what economists mean by market structure

· Understand the characteristics of a competitive market and how the competitive market model closely resembles many real-world markets

· Understand the concept of marginal revenue and be able to apply the tools of marginal analysis to the question of profit-maximization

· Understand the firm’s shutdown condition

· Understand the firm’s short run output decision and how that leads to the construction of the short-run supply function

· Be able to find profit for a firm

· Be able to find the short-run market equilibrium price and quantity for a competitive market

· Understand how a competitive market adjusts to changes in demand or costs in the short run and the long run

· Understand the characteristics of a long-run market equilibrium and why the characteristics must hold

· Understand the efficiency of the long run competitive equilibrium

15. Monopoly

· Understand the characteristics of a monopoly

· Understand the causes of monopolies

· Understand how the monopoly model describes many markets where firms have some but not total monopoly power

· Be able to explain the sources of market power for many near monopolies

· Understand monopoly demand and be able to calculate marginal revenue for a monopolist

· Be able to apply the tools of marginal analysis to the profit-maximizing decision of a monopolist

· Be able o compare the monopoly outcome with the competitive outcome

· Understand the welfare costs of monopoly and some benefits of monopolies

· Understand price discrimination, the potential benefits of price discrimination, and be able to provide examples

16. Oligopoly

· Understand the characteristics of oligopoly

· Be able to calculate and explain measures of market concentration

· Be able to find both the competitive and collusive outcomes for a duopoly

· Understand the typical relationship between relative firm size, market concentration, and the expected market outcome

· Understand the types of scenarios that economists study with game theory

· Be able to use Nash equilibrium and dominant strategy to find the equilibrium of a game

· Understand what the prisoners’ dilemma illustrates and be able to give examples of prisoners’ dilemmas in society

· Understand government policies in response to “excess” market concentration

17. Monopolistic Competition

· Understand the characteristics of monopolistic competition

· Be able to find the short-run and long-run equilibrium for a monopolistically competitive firm

· Be able to compare the efficiency of the long-run competitive outcome with the monopolistically competitive outcome in terms of excess capacity and markup

· Be able to explain the benefits of monopolistic competition

· Understand and be able to summarize the debates over advertising

· Be able to discuss the role of advertising and brand names in providing information for consumers and ensuring quality

PART SIX: THE ECONOMICS OF LABOR MARKETS

18. The Markets for the Factors of Production

· Be able to explain why resource demand is a derived demand

· Be able to find and explain the marginal product of labor and the value of the marginal product

· Be able to explain the reason for the diminishing marginal product of labor (or any resource) and the negative slope of the value of the marginal product curve

· Understand why for a competitive firm, the value of the marginal product is the input demand curve

· Understand the effects on input demand (value of the marginal product) of a change in output demand

· Understand the effects on input demand (value of the marginal product) of a change in technology

· Understand the effects on input demand (value of the marginal product) of a change in the availability of other resources

· Understand why labor supply is a trade-off between labor and leisure

19. Earnings and Discrimination

· Understand what determines supply and demand for different types of labor

· Understand compensating differentials and the role of compensating differentials in explaining earning differences

· Explain the role of education, including both human capital and signaling, in explaining earning differences

· Understand the role of natural ability differences in explaining earnings differences

· Explain the role of differences in personal effort in explaining earning differences

· Understand what actually constitutes labor market discrimination and the portion of wage differentials explained by labor market discrimination

20. Income Inequality and Poverty

· Understand how income redistribution to increase equity may decrease efficiency

· Understand the current level of income inequality in the U.S. and abroad and changes in income inequality over time

· Understand how the U.S. measures poverty

· Understand how the incidence of poverty differs across various demographic groups

· Understand some of the problems associated with the typical measures of poverty and income distribution

· Explain the various income redistribution programs in the United States

· Explain and comment on the arguments for and against income redistribution

PART SEVEN: TOPICS FOR FURTHER STUDY

21. The Theory of Consumer Choice

· Understand how the tradeoffs consumers with scarce income face and how these consumers make decisions and respond to environmental changes

· Use the model of consumer choice to explain why the demand curve has a negative slope

· Use the model of consumer choice to explain how wages affect labor supply and how interest rates affect household saving decisions

22. Frontiers in Microeconomics

· Be able to provide examples of asymmetric information and why asymmetric information may create market failures

· Be able to explain some market and behavioral responses that are attempts to correct for asymmetric information

· Be able to explain the primary theories of political economy or public choice

· Be able to explain some of the anomalies we observe in human decision making that differ from the predictions of the economic model of rational decision making