University of the South Pacific
Area of Study
Taught In English
EC102: Principles of Microeconomics
Course Level Recommendations
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Credits3 - 4
Recommended U.S. Semester Credits3 - 4
Recommended U.S. Quarter Units4 - 6
Hours & Credits
OverviewThe aim of this subject is to provide a systematic treatment of tools of Microeconomic analysis at an intermediate level.Microeconomics is the study of economic activity at the level of economic units, which are usually firms and consumers and their interaction at the marketplace. This intermediate course in microeconomics is designed to give students a solid understanding of economic intuition, theoretical constructs and analytical tools used in economics. It would particularly suit students interested to further advance in the study of economics, those expecting to be involved in business and policy fields and analyzing social processes.Microeconomics focuses on how various classes of economic units come to terms with the economic problem of scarcity. Households and firms are studied to analyse their behaviour within the resource constraints they face and the procedures they employ for identifying choices that would optimise their objectives. Simply put, it is the task of economics to show how to make optimal choices by the best use of scarce resources and therefore to maximiseeconomic welfare. As will become evident during the course, the general procedures for determining optimal choices involve the application of common sense and logic.The tools of microeconomics analysis developed in this course is in the particular context of an economy characterised by the private ownership of property and free markets and where economic units seek rationally to optimize their behaviour. The focus here is clearly on the neo-classical theory of economics.Topics covered include theories of consumer behaviour, firms, market structures, distribution and general equilibrium.Mathematics is the language of formal logic that enables one to define precisely and to express economic concepts and ideas clearly. The mathematical requirements for this course are basic algebra and calculus but the level of abstraction is much more intense than at the introductory level.Learning Objectives- Understand and know the main principles of microeconomics theory, in particular to comprehend the main ideas associated with economic reasoning.- To apply theory to understand and analyze micro-economic issues in different applications.- Understand and analyze problems in social decision making.- Upgrade student analytical skills from introductory level.- Gain experience in the application of microeconomic principles to analyze of a range of economic issues.Course ContentWeek 1Topic: IntroductionIntroductionWhy study microeconomics?Three key analytical toolsPositive and Normative AnalysisDemand and Supply AnalysisDemand, Supply and Market EquilibriumPrice Elasticity of Demand and relationships with changes in price and total revenueOther elasticitiesBack of envelope calculationsReadings: BB pages 4-47; JP pages 11-68; NS pages 4-19Week 2Topic: Consumer TheoryConsumer Preferences and the concept of utilityConsumer ChoiceReadings: BB pages 73 ? 136; NS pages 53 ? 138; JM pages 74 ? 105Week 3Topic: The Theory of DemandOptimal choice and DemandSubstitution and Income EffectCompensating and Equivalent variation Choice of labour and leisureReadings: BB pages 152-199; JP pages 111 ? 140Week 4Topic: Inputs and Production FunctionsProduction with single inputProduction functions with more than one inputSubstitutability among InputsReturns to ScaleTechnological ProgressReadings: BB pages 202 ? 244; JP pages 152 ? 178; NS pages 215 ? 238Week 5Topic: The Cost Minimization Problem and Cost CurvesThe Cost Minimization ProblemReadings: BB pages 253 ? 281; JP pages 195 ? 204; NS pages 243 ? 273Cost CurvesBB pages 287 ? 315; JP pages 182 ? 195; NS pages 243 ? 273Week 6Topic: Perfect Competition and Welfare: ApplicationsShort run and long run equilibriumApplications: Taxes, tariffs, price supports, price ceilings and floors, Production quotas and Incidence of taxes.Readings: BB pages 330 ? 437; JP pages 224 ? 304; NS pages 274 ? 341.Week 7 and Week 8Topic: Market PowerProfit Maximization by a monopolist, The Importance of elasticity of demand, Inverse elasticity pricing rule, Lerner Index, Multiple plants, Monopsony, Inverse elasticity pricing rule for monopsonists, Monopsonists, Capturing Surplus: price discrimination.Readings: BB pages 440 ? 527; JP pages 349 ? 422; NS pages 377 ? 402Week 9 and Week 10Topic: Imperfect CompetitionModels of Oligopoly, Dominant Firm markets, Monopolistic MarketsReadings: BB pages 530 ? 570; NS pages 408 ? 444; JP pages 430 ? 468Week 11Topic: Game Theory and Strategic BehaviourNash Equilibrium, Repeated Prisoner?s Dilemma, Sequential Move and strategic movesReadings: BB pages 573 ? 603; JP pages 477- 503; NS pages 175 ? 208Week 12Topic: Factor MarketsCompetitive Factor Markets, Effect of Monopolies on Factor Markets, Monopsony and WelfareReadings: JP pages 510-537; NS pages 451 ? 472Week 13 and Week 14Topic: General Equilibrium TheoryGeneral Equilibrium Analysis: Two Markets, Economic Efficiency, First and Second theorems of Welfare Economics.Readings: NS pages 345 ? 369; BB pages 650 ? 692; JP pages 309 - 331AssessmentTwo In-Semester Tests: 15% eachTwo sets of exercises: 7.5% eachTutorial Participation: 55Final Exam: 50%
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