Economics 2106H Homepage

Administration ------------------------------------------------- Mon. 8/13

1.  Syllabus

2.  Personal Introduction
    A. Education -Why study economics? 
    B. Research and Teaching
    C. Family
    D. Background/Interests
    E. Unique Items

3. Classroom Dynamics
    A. I will ask you many questions in class, because I believe that this is the best way for students to learn the material.
    B. I encourage students to ask questions about the material or how economics applies to contemporary problems. Ask in class, during office hours. At the beginning of each class I often ask whether anyone has questions from the reading or previous lectures.   
    C. Review notes before class.
    D. Evaluate both sides of arguments
    E. Disagree without being disrespectful
    F. Electronic Devices

4.  How to do well
    A. Principle of quality repetitions--needed to excel in anything
        1) Come to class
        2) Class website provides an outline and guide
        3) Do reading as it is being covered in class
        4) Talk to me inside and outside of class
    B. Learn tools of economics - graphs, words and equations
    C. Talk to me before, rather than after exams

5. Note about simplifying assumptions (use of models, linearity, movement of S&D curves)

------------------------------------------------- Wed. 8/15


Required Readings:
    Mankiw Chapter 1 "Ten Principles of Economics"
                 Chapter 2 "Thinking Like An Economist" (2-1a, 2-1b, and 2-1c only). You may read the rest of the chapter, which provides more details about economics.
    Bauman, Yoram. 2007. "Mankiw's Ten Principles of Economics, Translated." Nov. 17. 

A. What is Economics?
    1. Misconception: much broader than people think
    2. Definition
    3. Goal: Explain behavior of individuals, firms, organizations
    4. Economics is different from most disciplines
        a. Economics is a method of analysis and not a subject domain.
        b. Articulate and test a hypothesis
    5. Labor Market Returns
    6. Positive v. Normative Analysis

    Supplemenal Reading: 
         Guo, Jeff. 2014. "Want Proof College is Worth It? Look at this List of the Highest-Paying Majors." The Washington Post, Sep. 29.
         Weiserman, Jordan. 2014. "Want to be Stinking Rich? Major in Economics." Slate, Sep. 29

B. What are prices?
C. Ten Principles
    1. People face trade-offs
    2. Opportunity Cost
        The value you must sacrifice to obtain it. The cost of engaging in the next best alternative, foregone option. 
        Example: What is the opportunity cost of going to college?

    3. Economists contend that people make decisions based on the margins--whether the additional unit of something is worth the additional cost. 
        Margin = small change or derivative. 
    4. People respond to incentives
    5. Trade can make everybody better off
    6. Markets are usually a good way to organize economics activity
    7. Governments can sometimes improve market outcomes.
    8. A country's standard of living depends on its ability to produce goods and services
    9. Prices rise when the government prints too much money
    10. Society faces a short-run trade-off between inflation and unemployment


Required Readings:
    Mankiw Chapter 4 "The Market Forces of Supply and Demand"

    A. Demand Function/Curve
        1. Two definitions--A locus/schedule of points that tells:
            a) how much a consumer is willing to pay, given the quantity in the market; or
            b) the quantity a consumer is willing to buy, given the price
        2. Draw the Demand curve
When does the demand curve shift?
            a) Own price
            b) Income
            c) Prices of substitutes and complements
            d) Population
            e) Seasonality
            f) Preferences
        4. What is the difference between "increase in demand" and "increase in quantity demanded"?

    B. Supply Function/Curve
        1. Two definitions - A locus/schedule of points that tells
            a) the price a producer is willing to accept, given the quantity in the market or
            b) the quantity a producer is willing to sell, given the price
        2. Draw the Supply curve
        3. When does the supply curve shift?
        4. What is the difference between "increase in supply" and "increase in quantity supplied"?

------------------------------------------------- Fri. 8/17
    C. Market Aggregation for Demand and Supply
        1. Horizontal Aggregation - Graph
        2. Horizontal Aggregation - Formula
        3. Extensive vs. Intensive margins
    D. Equilibrium
        1. Graphical Example: Table 1
            Why is this the equilibrium? Invisible Hand.
        2. Numerical Example
    E. Comparative Statics/Changes in Equilibrium - Compare 2 equilibria without studying how the market moves from one to the other
        1. Bad coffee harvest in Brazil - what happens to price and quantity of US coffee?

        2. Newspaper article talks about the new benefits of wine in moderation and that northern CA has just had a severe frost that has destroyed many vineyards. What happens to price and quantity of wine?


Required Readings:
    Mankiw Chapter 5 "Elasticity and Its Applications"
Trefis Team. 2015. "Are Tobacco Houses on Their Way to Hitting a Tipping Point Anytime Soon?" Forbes, Aug. 11. 

    Introduction: If you get confused by the concept of elasticity, think about
        a. "sensitivity" - how elastic (sensitive) is one good to changes in price or income?
        b. the degree of substitutes. Price elastic goods have more substitutes.

   A. Price Elasticity of Demand 
        1. What happens to the quantity consumed of a good when the price changes (holding everything else equal)? 
            a. Ordinary 
            b. Giffin
        2. Definition
------------------------------------------------- Mon. 8/20
        3. Types
            a. Inelastic: 0>PE>-1 or absolute value of 0<|PE|<1
                Perfectly inelastic: PE=0
            b. Elastic: PE<-1 or absolute value of PE>1; |PE|>1.
                Perfectly elastic: PE=> - infinity
            c. Unitary: PE=-1 or absolute value of PE=1; |PE|=1.

        4. Examples 
            a. Elasticities over time (Long vs. Short Run) 
            b. Elasticities over product breadth
        5. Graphs of elastic and inelastic demand curves
        6. Calculate elasticity of demand between 2 points? 
            a. Formula
            b. Arc-Price (Midpoint)
        7. Calculate elasticity of demand at a specific point
            a. Is the elasticity of demand the same everywhere along a linear demand curve?
            b. What is the relationship between elasticity of demand and the slope?

------------------------------------------------- Wed. 8/22
        8. Elasticity and Revenue, Expenditure and Profit
        9. Summary
            - the more substitutes a good has, the more elastic its demand will be
            - the smaller the budget share of a good, the more inelastic it will be

    B. Income Elasticity: the percentage change in the amount of a good consumed divided by the percentage change in income.
        1. Normal: IE >0
            a) Necessities: 1>IE>0
            b) Unitary: IE=1
            c) Luxuries: IE>1
        2. Inferior goods IE<0

        3. Characteristics and examples of normal-inferior goods
            a) Different people
            b) Same person over time

        4. Graphical
            a. Supply and Demand:
how do changes in income affect demand?
            b. Engle curves: quantity (x-axis) vs. income (y-axis)
        5. Problems
        Question: There are two goods in market (x and y). If income increases, what will happen to consumption of x and y? Table 3

------------------------------------------------- Fri. 8/24

    C. Cross-Price Elasticity: the percentage change in the amount of a good (x) consumed divided by the percentage change in the price of another good (y).
        1. Substitutes: CPE>0;
x and y are substitutes if the quantity of y moves in the same direction as a change in the price of x.
        2. Complements: CPE<0; x and y are complements if the quantity of y moves in the opposite direction as a change in the price of x.
        3. Examples of substitutes and complements
        4. Examples of changes in equilibrium

    D. Price Elasticity of Supply
        1. Definition
        2. How do we calculate?
            a. Between two points: Midpoint formula
            b. At a particular point:
    3. Graphs of elastic and inelastic supply curves
        4. Examples


Required Readings:
    Mankiw Chapter 7 "Consumers, Producers, and Efficiency of Markets"

   A. Surplus
        1. Consumer 
        2. Producer
        3. Total Surplus
------------------------------------------------- Mon. 8/27
    B. Analysis and Graphs
    C. Value, Cost, and Price
    D. Efficiency
    E. Individual and social welfare
    F. Examples
        1. Demand and supply curves are as follows: Qd=20-p and Qs=-4+2P
            a. Calculate equilibrium price and quantity
            b. Draw a S & D figure and label.
            c. Calculate producer, consumer, and total surplus
            d. Suppose D increases to Qd=32-p. Calculate new equilibrium price and quantity
            e. In Figure (part b) draw change in demand and label graph correctly.
            f. Calculate new consumer, producer, and total surplus.


Required Readings:
    Mankiw First half of Chapter 6 "Supply, Demand, and Government Policies"

    Richard Epstein, "Sell Your Body, Save a Life," The Wall Street Journal, Free Press (16 April 1998).
    Julian Sanchez, "Whose Organs Are They, Anyway? Morality and the Transplant System." Reasononline, 26 June 2003.
    Alexander Tabarrok, "Life-Saving Incentives: Consequences, costs and solutions to the organ shortage." The Library of Economics and Liberty, 5 April 2004.

    A. Introduction
    B. Price Controls
        1. Price ceiling
            a. Example: rent control

            b. Analysis
                1) How do firms respond to incentives?
                2) How do consumers respond to incentives?

------------------------------------------------- Wed. 8/29
           c. Short-run vs. Long-run
        2. Text example: should we enact laws that prevent price gouging after natural disasters?
            a. What is the objective of the law?
            b. What kind of behavior do we want to encourage after natural disasters
                1) Supply side
                2) Demand side
            c. Political context
            d. How do prices convey information?

------------------------------------------------- Fri. 8/31

        3. Price floor
            a. Living wages and
minimum wage
            b. Who makes the laws?
            c. How do the laws vary by state? How have they changed over time?
            d. Analysis
            e. Short-run vs. Long-run

            f. Living Wages
                1) Living Wage Calculator
                2) List of living wage cities
------------------------------------------------- Wed. 9/5
            g. Characteristics of minimum wage earners
                1) Job type (Pew Research)
                2) Age, race, gender, etc. (Bureau of Labor Statistics)
            h. Summary of Peer-reviewed scholarship
                1) Living wages
                2) Minimum wages

    C. Quantity Controls (Mankiw Chap. 7, pages 149-150)
            a. Example: the market for organs
            b. What is the current law?

            c.  Analysis
------------------------------------------------- Fri. 9/7
            d. Other forms of distribution
                1) Markets
                2) Lifesharers-condition receipt on being willing to donate


Required Readings:
    Mankiw Second half of Chapter 6 "Supply, Demand, and Government Policies"
    Mankiw Chapter 8 "Application: The Costs of Taxation"
Clifford F. Thies, "The Dead Zone: The Implicit Marginal Tax Rate," Ludwig von Mises Institute, Mises Daily Index (Nov. 9, 2009).
    Mankiw Chapter 12 "The Design of the Tax System"
    Edward C. Prescott, "Why do Americans Work So Much More than Europeans?"

    A. Introduction
    B. Three ways to analyze taxes

    C. Effects of taxes
        1. Two different prices
        2. Tax
        3. Quantity

        4. Consumer and producer surplus
Government tax revenue
        6. Deadweight Loss of taxation
        7. How do taxes affect the markets for substitutes and complements?
    D. 5 Rules of Who bears the burden of taxes?
  ------------------------------------------------- Mon. 9/10
    E. Progressive vs. regressive taxes 
    F. Subsidies
        Spending: spending vs. income.
        1. Three ways to analyze subsidies
        2. Effects of subsidies
            a) Two different prices
Subsidy per unit
            c) Quantity
            d) Consumer and producer surplus
            e) Total Subsidy

------------------------------------------------- Wed. 9/12
    MIDTERM #1

------------------------------------------------- Fri. 9/14

        3. 5 Rules of Who receives benefits of subsidies?
        4. Do subsidies help low-income or high-income people?
        5. How do we decide what to subsidize?
        6. How do subsidies affect markets for substitutes and complements?

    G. How do taxes affect markets for substitutes and complements?

    H. Types of taxes (Quiz)
        1. Estate tax
            a. Definition, history and rates
            b. How much does tax account for of government revenue?
            c. Incentives

        2. Individual Income taxes
            a. History and here.
Table 3 and comparisons
            c. Tax vs. Spending.
            d. Federal outlays and revenue as % GDP.
            e. Who does not pay taxes?

            f. International differences (Mankiw Chapter 12)
            Read: Edward C. Prescott, "Why do Americans Work So Much More than Europeans?"
            Economic Growth

        3. Corporate Tax Rate
            Incentives: Burger-King and Tim Horton's. Pfizer.
            Corporate Income Taxes
            a. Corporate location: Burger King,
            b. Firm responses
                1) Increase employee compensation (Wages, retirement, benefits, ...).
                2) Increase employment.

    I. Tax policy affects behavior
        1. Taxes and benefits for low income

------------------------------------------------- Fri. 9/21

    L. Design of the Tax System (Mankiw Chapter 12 "The Design of the Tax System")
        1. Definition
        2. Income vs. Consumption
        3. Federal Tax Code
            a. Generally Progressive-text Table 3
            b. Revenues-text Table 2
            c. Expenditures-text Table 4
            d. Debt    (Debt to GDP) (Debt total-chart) (Debt Total-by year)
           e. General Info about taxes

        4. Other characteristics
            a. Length
            b. Complexity
            c. Costs
            d. Fairness
            e. Transparency

------------------------------------------------- Mon. 9/24
        5. Alternatives
            a. Fair Tax
            b. Flat Tax
            c. National Sales Tax


Required Readings:
    Mankiw Chapter 9 "Application: International Trade"

    A. No trade-autarky
    B. Exports
        1. Pw>P(domestic)
        2. Consumer, Producer, and Total surplus

    C. Imports
        1. Pw<P(domestic)
        2. Consumer, Producer, and Total surplus

        3. Tariffs
------------------------------------------------- Wed. 9/26
    D. Criticisms of free trade
    E. Compensating losers of trade


   A. Free Markets
        1. Benefits
        2. Individual maximization often implies social maximization
        3. Government action imposes costs
        4. However, sometimes there is market failure. 

    B. Market Failures
        1. Externalities
Required Readings:
    Mankiw Chapter 10 "Externalities"
Optional reading:
    Hazlett, Thomas W. "Looking for Results: Interview with Nobel Laureate Ronald Coase on Rights, Resources, and Regulation," Reason Magazine.

            a. Definition
Negative Externality
            c. Positive Externality
            d. Examples
            e. Graphs
            f. Market Breakdown/ Inefficiency

------------------------------------------------- Fri. 9/28
            g. Possible Solutions
                1) Taxes
                2) Subsidies

                3) Regulation
                4) Tradable permits

------------------------------------------------- Mon. 10/1
                5) Coase Theorem
                    a) Definition
Transactions Costs
Efficiency: does not depend on TC or PR
                    d) Examples-- Table 5
                    e) Process to Solve Coase Problems
                        1) Start with the firm/person that does not have the property rights.
                        2) List the options available (usually buy PR and not buy PR). Sometimes it can be more complicated
                        3) Identify the costs (or benefits) for each option.
                        4) Choose the option that produces the lowest cost to the firm (or highest benefit to firm)
------------------------------------------------- Wed. 10/3
                    f) Policy implications
                        1) Spectrum rights (radio and TV; telecommunications)
                        2) Example of Air Quality (EPA Data)

                    g) Business applications: See the first 1:40 of the video.
                        1) How do transactions costs affect businesses?
                        2) In what types of circumstances do firms have higher and lower transactions costs?

       2. Public Goods
    Required Readings:
    Mankiw Chapter 11 "Public Goods and Common Resources"

          a. Definition
          b. Examples
: Table 4
          c. Market Breakdown/Inefficiency
          d. When do we want to treat something as a private good? Public good?
             1) Reasons for private property
             2) Reasons for public property
          e. Possible solutions
------------------------------------------------- Fri. 10/5
       3. Information asymetries
       4. Monopolies


Required Readings:
    Mankiw Chapter 3 "Interdependence and Gains from Trade" 

A. Gains from Trade
    Principle 5: In general, voluntary exchange makes all parties better off without making others worse off (Pareto Optimal)

    1. Production Possibilities Frontier
        Illustrate the principles of scarcity and constrained choice
        a. Definitions
            1) PP Set
            2) PP Frontier
        b. Graph
            1) Downward sloping - Marginal Rate of Transformation (MRT)
            2) Concavity
------------------------------------------------- Mon. 10/8
        c. Efficiency
            1) Technical
            2) Social

        d. Economic Growth
        e. Examples
            Straight line PPFs
        f. Summary

B. Comparative Advantage

Optional Reading:
    Landsburg, Steven. 1998. "What Cayley Knows" in Fair Play: What your Child Can Teach You About Economics, Values, and the Meaning of Life. Free Press.

    1. Absolute Advantange
    2. Comparative Advantange
            See Table 7
    3. Applications to individuals, companies, nations. This is the basic principle of international trade
    4. How does trade expand the PPF? 
            Text p. 53


Required Readings:
    Mankiw Chapter 13 "The Costs of Production"


    A. Review: Concepts to keep in mind from earlier in the course
        1. Production possibilties frontier: technical and social efficiency 
        2. Opportunity Cost
        3. Profit and Revenue
        4. Market structure: Table 6

--------------------------------------------------------- Wed. 10/10

    B. Long-Run Production Decisions
        Inputs (Cost) --> [Production Function] --> Outputs (Price)
        Broadly defined
        Production Function Graph
        Cost Function Graph

    C. Revenue
        1. Total Revenue
        2. Marginal Revenue = Increase in total revenue from producing another unit
        3. Average Revenue = Total Revenue divided by Quantity (Revenue per unit)

    D. Cost
Total Cost (TC) = FC + VC
        2. Marginal Cost = Increase in total cost from producing another unit
        3. Average Cost = Total Cost divided by Quantity (Cost per unit)
Fixed Cost = Any cost a firm bears in the short run that does not depend on its level of output. Costs are incurred even if the firm produces nothing.
        5. Variable Cost = Any cost that depends on the level of production (Q).

    E. Profit
        1. Total Profit = Total Revenue - Total Cost
        2. Marginal Profit = Increase in total profit from producing another unit
        3. Average Profit = Total Profit divided by Quantity (Profit per unit)

    F. Example
        See Table 8

    G. Firm Decision Rules to Maximize Profits
        1. Produce where MC = MR. (in competition MR = P).
        2. Marginal Profit = 0
        3. Maximize Profits
         ->All three concepts give the same result

    H. Returns to Scale
        Returns to Scale: Describes the relationship between inputs and outputs.
        See Table 9
        1. Increasing
        2. Decreasing
        3. Constant
        4. Graphs
        5. Examples of economies of scale

     I. Accounting Profit vs. = Economic Profit
        a. Accounting Profit:  = (Revenue - Dollar Costs)
        b. Economic Profit    = (Revenue - Dollar Costs) - Opportunity Costs
            Economic Profit:   = Accounting profit - opportunity costs
        c. Accounting and Economic Rate of Return
        d. Implications: Firm entry and exit conditions

--------------------------------------------------------- Fri. 10/12
    J. Short Run vs. Long-Run Decisions (Chapter 14):
Required Readings:
    Mankiw Chapter 14 "Firms in Competitive Markets"
    Kolata, Gina, "As Abortion Rate Decreases, Clinics Compete for Patients," The New York Times, December 30, 2000.

    Two characteristics define the "Short Run"
        - Existing firms face limits imposed by some fixed factor of production
        - No exit or entry

    K. Costs - See Table 10
        1. Sunk Cost = Costs that are already spent and are non-recoverable
        2. Marginal cost - just a function of variable costs, not affected by fixed costs.
        3. Average Fixed Cost = FC/Q = gets smaller over q.
        4. Average Variable Cost = VC/Q.
        5. Average Total Cost or Average Cost = TC/Q.

--------------------------------------------------------- Mon. 10/15
    MIDTERM #2
--------------------------------------------------------- Wed. 10/17

    L. What are the implications for firm decision making?
Table 11
        1. Case 1: P  > ATC > AVC
        2. Case 2: ATC > P > AVC
        3. Case 3: ATC > AVC > P

    M. 2 Graphs: Market and Firms
        Markets Summary: Figure 8 in text (p. 305)

--------------------------------------------------------- Fri. 10/19


Required Readings:
    Mankiw Chapter 15 "Monopoly"

    A. Review: Characteristics of monopolies - 
Table 7
    B. How are monopolies established?
    C. Monopolies and Advertising
    D. Graph: both a market and a firm - See 
Table 12
        a. Monopolist demand--controls both quantity and price
        b. Marginal Revenue < Price
        c. Decision Rule: Profits are maximized at MR=MC
        d. Monopolist markup
        e. Deadweight Loss of monopoly

    E. Graphical comparison with perfect competition
        a. Price
        b. Quantity
        c. Consumer and Producer Surplus

--------------------------------------------------------- Mon. 10/22


    F. Mathematical comparison with perfect competition
        a. Solve for monopoly profit maximizing: MC = MR
        b. Solve for competition profit maximizing: MC = Demand Curve = P

    G. Price discrimination
        a. First Degree: Firm captures all of the consumer’s surplus.
        b. Second Degree: Producers create variations on the product and consumers select the different products and let the consumers decide what to do.
        c. Third Degree: The firm uses certain characteristics to divide consumers into groups and picks different prices for the different groups that maximize its profits.
        d. Examples
        e. Conditions for successful price discrimination

--------------------------------------------------------- Wed. 10/24

    H. Public policy approaches to monopolies
        a. Preemptive Regulations
        b. Reactive Regulations
        c. Antitrust enforcement - See Federal Trade Commission and Department of Justice.
        Historically - Herfindahl-Hirschman Index (HHI) = sum of the squared value of market shares.
        Antitrust Division Action
            HHI > 1800 Concentrated - challenge if index is raised by > 50 points by the merger
            1000 < HHI < 1800    Moderate concentration - challenge if index is increased by > 100 points by the merger
            HHI < 1000    Unconcentrated
    I. Cases
        a. Microsoft antitrust case 
        b. Pharmaceuticals
    J. Monopsony: A market in which there is only one buyer

--------------------------------------------------------- Mon. 10/29

Required Readings:
    Mankiw Chapter 17 "Oligopoly"
    A. Characteristics - Table 7
    B. Cartels
        1) Definition: Group of firms that try to collude to act like a monopoly and share the monopoly profits.
        2) Goals: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." - Adam Smith, The Wealth of Nations, 1776.
        3) Examples

        4) Collusion and Enforcement problems Table 13
            a) Prisoner's Dilemma:
Dominant Strategy (Strictly v. Weakly)
            c) Nash Equilibrium:

            d) John Nash.

--------------------------------------------------------- Wed. 10/31

Required Readings:
    Mankiw Chapter 16 "Monopolitic Competition"
    A. Characteristics - Table 7
    B. Examples
    C. Competition


Required Readings:
    Becker, Gary S. "Nobel Lecture: The Economic Way of Looking at Life," The Journal of Political Economy, Vol. 101, Issue 3 (June 1993): 383-409. Do not read the mathematical appendix.

A. Discussion of Becker's Nobel Prize speech
   1. Introduction (Economic Way of Thinking)

          a. Criticism: how can economists assume all people are selfish?
        b. Criticism:
how can economists believe everyone is rational?
            Rationality v. incentives
        c. What differentiates economics from other disciplines? 
        d. Criticism: economists use models that are not realistic

--------------------------------------------------------- Fri. 11/2
    2. Discrimination
        a. Prejudice-based (Beckerian)
            1) Definition: How does Becker model discrimination?
            2) What three types of prejudicial discrimination does Becker discuss?
            3) What testable hypotheses can be made about prejudicial discrimination?
            4) How can we extend the model to incorporate preferential treatment?
            5) What hypotheses can be articulated about preferential treatment?
------------------------------------------------- Mon. 11/5
            6) Empirical studies of discrimination: two categories
                a) Controls

                Example (not required readings): Mustard, David B. 2001. "Racial, Ethnic, and Gender Disparities in Sentencing: Evidence from the U.S. Federal Circuits." Journal of Law and Economics. Vol. 44: 285-314.
               b) Experiments
            7) Foreign v. Local
            8) Education
                Required reading: Gluckman, Nell. 2018. "The Lawsuit Against Harvard Admissions Turns into a Courtroom Battle of Economists." Chronicle of Higher Education. Oct. 25.
                Gluckman, Nell. 2018. "Dueling Economists: Rival Analyses of Harvard's Admissions Process Emerge at Trial." Chronicle of Higher Education. Oct. 30.
            9) Intertemporal effect
                Incentives for women and blacks to invest in human capital
        b. Statistical discrimination
           1) Definition
           2) Examples
           3) What happens to your profits when you statistically discriminate?
        c. Legal implications
------------------------------------------------- Wed. 11/7
    3. Crime and Punishment
        a. Theory: how did it originate?
        b. What assumptions did he loosen or change?
        c. How was his theory different from previous theories?

------------------------------------------------- Fri. 11/9
    4. Human Capital
        a. Definition
        b. What challenges did Becker face in getting acceptance for his theory?
        c. Types
            1) General
            2) Specific
        d. How do you acquire HC?

    5. Families


Required Readings:
    Mankiw Chapter 21 "The Theory of Consumer Choice"

   A. Budget Constraints
        1. Model Assumptions
            a) 2 goods: x and y, each with their own price px and py
            b) One period decision - No borrowing or lending
            c) Income is taken as given (Income=I)
        2. Budget Set = a set of consumption bundles the consumer can afford (all bundles of x and y that costs less than I)
            a) Mathematical Representation pxx+pyy<=I
            b) Graphical Representation

        3. Budget Line
            a) Mathematical Representation pxx+pyy=I
            b) Graphical Representation
            c) Slope
            d) Economic Interpretation: the slope of the budget line is the rate that at which the market "is willing" to exchange good y for good x.

--------------------------------------------------------- Mon. 11/12
    MIDTERM #3
--------------------------------------------------------- Wed. 11/14

            e) Changes in the budget line
                1) Income changes - tie back to Income effects (Section 4B)
                2) Price changes - tie back to Price effects (Section 4C and 4D) 
                3) Kinked budget lines - different prices at different quantities
        Budget summary: What will the consumer choose?

    B. Preferences
        1. Preference options
            a) Strictly prefer
            b) Weakly prefer
            c) Indifferent
        2. Types of products
            a) Goods - You are willing to pay to obtain a good. More is preferred to less.
            b) Bads - You must be paid to accept a bad. Less is preferred to more.
            c) Examples

-------------------------------------------------------- Fri. 11/16
    C. Indifference Curves
        1. Introduction
        2. Definition: An indifference curve represents a set of market bundles that a person equally prefers (or gives the consumer an equal amount of utility). If two bundles are on the same indifference curve, then the person is indifferent between the two bundles.
        3. Draw Indifference Curves
        4. Properties of Indifference Curves
            a) They cannot cross!
            b) Downward sloping (for 2 goods)
            c) Monotonicity
            d) Convexity: The average bundle will be at least as good as or strictly preferred to each of the two extreme bundles.

        5. Marginal Rate of Substitution
            a) Definition: MRS = MUx/MUy = slope of the indifference curve. It is the rate at which a consumer is willing to exchange y for x.
            b) Diminishing MRS
        6. I curves for Substitutes and Complements
            a) Perfect substitutes: consumer is willing to substitute on good for the other at a constant rate
            b) Perfect complements: goods which are always consumed together in fixed proportions

 ------------------------------------------------- Mon. 11/26

   D. Putting the two sides (budget constraints and preferences) together
        1. Introduction
        2. Intuition of maximizing
            Doing the best you can with what you've got
            Maximizing utility subject to constraints
        3. Graph
        4. What do consumers choose? 
             a. MRS=-(MUX/MUY)=-(PX/PY)
            b. Can also think of this as MUx/Px = MUy/Py. In words, the marginal benefit per dollar spent must be the same. If the marginal benefit per dollar spent is higher for x than y, you should consume more x and less y.
            c. Why must #2 hold? Proof by counter exaxmples
                1) |MUX/MUY|>|PX/PY| then you value x relatively more than y at that price. Therefore, you give up y to get x.
                2) |MUX/MUY|<|PX/PY| then you value y relatively more than x at that price. Therefore, you give up x to get y.
         Summary: A consumer must be at MRS=-(MUX/MUY)=-(PX/PY) or else he could do better by trading one good for another.

------------------------------------------------- Wed. 11/28

        5. How does the consumption set change? 
            a. Changes in income
(Chapter 21-3b; Figures 7-8)
                Income Effect only:
                1) What happens to income?
                2) Is the good normal or inferior?
------------------------------------------------- Fri. 11/30
            b. Changes in prices: (Chapter 21-3c and 21-3d; Figures 9-10)
                If the price of a good changes, how will that affect your consumption of the two goods?
               1) Substitution Effect:
                    a) change in consumption that results from moving to a different point on I curve (point with different MRS)
                    b) what effect does the change in price have on consumption, holding utility constant?
                2) Income Effect: change in consumption that results from moving to a different I curve
                3) Total Effect:

    E. Wages, Labor, and Leisure (Chapter 21-4b; Figures 13-14)
        1. Decisions about labor and leisure
           Loosen assumption #3 (above): income no longer taken as given

        2. Budget Constraint
        3. Graph
        4. Changes in non-wage income
------------------------------------------------ Mon. 12/3
        5. Changes in wage income
            a. Substitution Effect
            b. Income Effect
            -- backward bending labor supply curve

        6. Changes in tax rates
        7. What is the opportunity cost of time for different people?
        8. Labor Supply Curve

    F. The Price of Time (Chapter 21-4c; figures 15-16)
        1. Decisions about Consumption over time
        2. What is the value of money at different points in time?

            a) Present value - the value of a future stream of income in today's dollars
b) Future value - the value of a stream of income in future dollars
            c) Applications
                1) Education
                2) Investments
                3) Firms
--------------------------------------------------------- Fri. 11/9
        3. Intertemporal Budget constraint
            a. Period 1
            b. Period 2
            c. S > 0 Saving; S < 0 Borrowing
        4. Endowment Point
            a. Saving
            b. Borrowing
        5. Graphs
            a. Change in income

            b. Change in price
                1. Substitution Effect
                2. Income Effect
             c. Differences between borrowers and savers

Slope = - (Px/Py)
Max y = y-intercept (b)
Basic (x and y)
- Px/Py
Labor (c and l)
- W/Pc = - W (Pc =1)
A + wH
Choose H and l
   Intertemporal (C1 and C2)
- (1+r)
 I1 (1+r) + I2
Borrow and Save


    1. Review Course objectives
    2. UGA Center for Undergraduate Research (CURO)
        a. Annual symposium
        b. Journal for Undergraduate Research Opportunities (JURO)
        c. Best Paper Awards
        d. Summer Research
    3. Economics Major
    4. Economics BA-MA program
        a. Program
        b. Placements
        c. Math and Statistics

--------------------------------- End of Class -----------------------