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Kathmandu University School of Management Kathmandu College of Management

Course title Course Code Semester Credit Hours Class schedule am Instructor : : : : : : Microeconomics ECO 201 I (fall 2007) 3 Mondays, Wednesdays and Thursdays (8:00 9:30)

Mr Dadhi Adhikari (dadhinp@yahoo.com)

Course objectives
The objective of this course is to acquaint students with the basic concepts of Microeconomic Theory. The course aims to enable students to understand and analyze economic behavior of individual decision-making entities or units such as markets, firms/enterprises and households, thereby, facilitating their understanding of the use of Microeconomics in managerial decision-making.

Course Content
1.

Introduction to Microeconomics and Basic Concepts (4 hrs)

What economics is Basic issues in Economics: scarcity, efficiency and alternatives Basic division/classification of economic studies Introduction to Microeconomics Scope and purpose of Microeconomics and its significance in business decision making Microeconomics and Macroeconomics- basic differences The need for economic models, assumptions, theories, laws and hypotheses in Microeconomics

2.

Basics of Demand and Supply Analysis (10 hrs)

Concepts of Demand and Supply: Individual and Market Demand and Supply Demand and Supply Curves, schedules and factors affecting demand and supply Movements along demand/supply curves and their shifts Concepts, types and measurements of and factors affecting elasticity of demand and supply (point and arc elasticity) The market mechanism as an interplay of demand and supply Consumers surplus Effects of government intervention, price controls and the concept of externalities and deadweight loss

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3.

Concept of utility: Cardinal and Ordinal Basic understanding of the law of diminishing marginal utility Indifference curve analysis: Concept, properties, MRS Consumers Equilibrium: the interplay of the budget line and indifference curves, price effect, income effect, substitution effect and effect of changes in income and prices Concept of Engel Curves Introduction to the concept of revealed preference

Consumer Behavior (6 hrs)

4.

Concept of production, factors of production and introduction to production functions Production with one variable input- The Law of Variable Proportions; concept of Total Product, Average Product and Marginal Product Production with two variable inputs- Production isoquants, isocost lines, least cost combination of factors, MRTS and two special cases of production functions- perfect substitutes and perfect complements Introduction to the Laws of Returns to Scale

Theory of Production (6 hrs)

5.

Costs and Revenues (8 hrs)

Concepts of costs: economic cost, accounting costs, sunk costs Short run and long run costs: total cost, average cost and marginal cost; schedules, curves, characteristics and their interrelationships Economies and diseconomies of scale Concepts of revenues: total revenue, average revenue and marginal revenues under conditions of perfect and imperfect competition Concepts of and conditions for profit maximization by firms

6.

Market Forms and Product Pricing (10 hr)

Concept of markets and introduction to market forms, important features of the different market forms and basic concept of degrees of market power exercised Perfect competition: Features, pricing and production decisions in the short and long run time periods Monopoly: Features, pricing and production decisions in the short and long run time periods, social cost of monopoly, sources of monopoly power, monopoly and consumers surplus and first, second and third degree price discrimination Monopolistic competition: Features, pricing and production decisions in the short and long run time periods Oligopolistic Competition: Features and basic distinction from monopolistic competition

7.

Markets for Factor Inputs and Factor Pricing (4 hrs)

Concept of factor markets: the demand for and supply of factors of production Preliminary notion of the determination of rent, wages, interest and profit

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Text Book and References

Our primary text book for this course is Microeconomics by Robert S. Pindyck and Daniel L. Rubinfeld. Beside this book, An Introduction to Positive Economics by R.G. Lipsey and K.A. Chrystal, Price Theory and Its Uses by D.S. Watson and M. Getz, Advanced Economic Theory by H.L. Ahuja, Microeconomics by G. Mankiw will also be used. The teaching materials and class discussions will be based on these books. However it is mandatory to have a copy of first book (Pindyck and Rubinfeld) with each of you. Other reference books and relevant magazines, papers and articles are always an added advantage.

Delivery of the course

The class teachings and discussions will cover the prescribed course outline. Problem sets and assignments will be given to you as and when we cover few topics. Make serious attempt to work the problems on your own as you are required to uniquely present the assignments. To sharpen your understanding, ask questions in the class room, practice a lot and make sure that you understand the concepts. Read as much as you can: books, reading materials and the business section of newspapers and magazines.

Evaluation Criteria
The best way to do well in this course is to attend the classes regularly, ask questions, understand the concepts and perform best in the weekly tests. 75% weight of your course grade is assigned to the external evaluation by the Kathmandu University. For the 25% weight given by the instructor, the following assessment will be applied:

Nature of Assessment

Weigh t
10%

Remarks
Attendance, asking and answering questions, presentations, group assignments, prior reading of books. Six home assignment will be given, out of which best five will be graded This exam will cover the chapters discussed in last two weeks One mid-term exam (to be decided later) At the end of semester

Class Participation

2 3 2 3

Home Assignment Fortnightly exam Mid-term Exam Internal Semester Exam

20% 10% 30 % 30 %

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Session Plan
Each session is of one and half hours each and we have 3 sessions each week. We spend four hour per week in average for discussing the chapters covered in syllabus. So it will take 12 weeks for concluding the course.

Session Plan, Microeconomics, BBA I (A) Fall 2007**

Sessio n
1

Chapter

Topic

Prior* Reading

Assignment/ Submission

Chapter 1

Basic Calculus and optimization What economics is Basic issues in Economics: scarcity, efficiency and Ahuja, alternatives Chapter 1 Basic division / classification of economic studies Introduction to Microeconomics Scope and purpose of Microeconomics and its Watson and significance in business Getz, decision making Chapter 1 Microeconomics and Macroeconomics- basic differences The need for economic models, assumptions, theories, laws and hypotheses in Microeconomics Concept of demand, demand schedule, demand curve, individual and market demand concept of change in demand and quantity demanded Factors affecting demand Concept of Supply, Supply schedule, supply curve, individual and market supply Watson and Getz, chapter 1 -Handout -Assignment 1

Chapter 1

4 Chapter 1

Chapter 2

Watson and getz, Page 13-21

Chapter 2

Watson and getz, Page 21-25

Class Test 1 (question from chapter 1)

* Prior readings indicate the books to be followed beside the text book. ** Subject to change

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concept of change in supply and quantity supplied

The market mechanism

7 Chapter 2

as an interplay of demand and supply Effect of govt. intervention: Price ceilings and price floors Practice Consumer Surplus, externalities and deadweight loss Concept and types of demand elasticity, Measurement of Price elasticity of demand - Determinants of price elasticity of demand - Concept of supply elasticity - Application of elasticity

Watson and Getz, page 25-33

Chapter 2

Mankiw 133 150, 199-206, 155-162 Watson and Getz, page 37-47 Watson and Getz, page 47-50, 6870 Watson and Getz, page 50-53, 7071

Chapter 2

10

Chapter 2

11

Chapter 2

-Submit Assignment 1 - Assignment 2 class test 2 (question from chapter 2)

12

Chapter 3

Concept of utility: Cardinal and Ordinal Watson and - Basic understanding of Getz, page the law of diminishing 75-81 marginal utility Indifference curve Watson and analysis: Concept, Getz, page properties, MRS 97-103 -Consumers equilibrium -Price and income effect -Substitution effect - Engel Curve - Revealed preference thoeory Concept of production, factors of production and introduction to production functions, Concept of short run and long run Production with one variable input- The Law of Variable Proportions; concept of Total Product, Watson and Getz, page 104-114 -Watson and Getz, page 114117 -Ahuja 191193 Pindyck and Rubinfeld, Page 187190 Watson and Getz, page 169-174

13

Chapter 3

14

Chapter 3

15

Chapter 3

Submit Assignment 2 - Assignment 3

16 17

Chapter 4 Chapter 4

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Average Product and Marginal Product Chapter 4 18 - Production with two variable inputs- Production isoquants, isocost lines, least cost combination of factors, MRTS - two special cases of production functionsperfect substitutes and perfect complements - Laws of Returns to Scale Concept of Cost Short run cost: Total, Average and Marginal with cost schedule -Short run cost curves and their relationship -Concept of economies and diseconomies of scale - Long run cost curves Concept of Revenue and revenue curves under perfect and imperfect market Concepts and condition for profit maximization by firms Concept of markets and introduction to market forms, important features of the different market forms and basic concept of degrees of market power exercised Perfect competition: Features, pricing and production decisions in the short and long run time periods Monopoly: Features, pricing and production decisions in the short and long run time periods, social cost of monopoly, sources of monopoly power

Ahuja ,316319, 342346 Submit Assignment 3 - Assignment 4

19

Chapter 4

Watson and Getz, 174177 Ahuja, 359363 Ahuja, 363372 Ahuja, 372378 384-385 378384,386387 Ahuja 401414 Ahuja 427434

20 21

Chapter 5 Chapter 5

Class test 3 (Question from chapter 3 & 4)

22

Chapter 5

23

Chapter 5

24

Chapter 5

25

Chapter 5

Submit Assignment 4 - Assignment 5 Class Test 4

26

Chapter 6

Handout

27

Chapter 6

Watson and Getz, 251263 281-286

28

Chapter 6

Pindyck and Rubinfeld, page 339362

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29

Chapter 6

-Consumer surplus and Price discrimination - Monopolistic Competition: Feature -Monopolistic Competition: Short run and long run equilibrium - Oligopolistic Competition: Features and basic distinction from monopolistic competition Concept of factor markets: the demand for and supply of factors of production Preliminary notion of the determination of rent, wages, interest and profit Old questions

Pindyck & Rubinfeld, page 383393, 436437 Submit Assignment 5 - Assignment 6

30

Chapter 6

Rubinfeld, page 437443

31

Chapter 7

Pindyck and Rubinfeld, page 515527 Ahuja Submit assignment 6 Class Test 5

32 33

Chapter 7 Revision

Prior readings include the page numbers and name of the book other than text book, which will help you to understand the concepts better in the class and also to improve your class participation.