Semester 1 (18 points)

ECON 201: Microeconomics

2018 Course Information*

Lecturer: David Fielding

Room 5.19, 5th Floor, Otago Business School

479 8653

david.fielding@otago.ac.nz

Lecturer: Viktoria Kahui

Room 5.18, 5th Floor, Otago Business School

479 5278

viktoria.kahui@otago.ac.nz

Senior Tutor: Terry Kerr (you must see Terry if you want to change tutorials)

Room 5.16, 5th Floor, Otago Business School

479 8647

terrence.kerr@otago.ac.nz

Our office hours will be announced.

Dept. Admin.: For basic administration queries, please visit the Economics ‘reception’ (Room

5.01a, by the lifts) on the 5th floor of the Commerce Building between 9am and

3.30pm.

Or phone / email: 479 8725; economics@otago.ac.nz

Lecture Times: 2.00 to 2.50 on Tuesday & Thursday; and 1.00 to 1.50 on Wednesday.

Tutorial: 50 minute class per week, times announced in 1st week of lectures.

1. Welcome to ECON201!

The over-arching objective of ECON 201 is to promote an understanding of key microeconomic theories,

with emphasis on their real-world applications. The material covered is structured around the 10 topics

detailed in the course outline below.

* Although every effort has been made to ensure that the information contained in this document is accurate,

this information may be subject to change.

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We will try to equip you with the knowledge and skills to be able to make sense of a wide range of interesting

and commonplace economic phenomena relating to the behaviours of individuals, firms and government

organisations. Also, by the end of the course, you should be able to read and understand non-specialist

economics reporting and analysis, such as is found in The Economist magazine – from which many of the

readings (see below) are taken.

ECON 201 is intended to complement other courses in Commerce, Humanities and Science, including

preparing for other Economics papers. ECON 201 builds on BSNS104 and ECON 112, and so you are

expected to have at least a working knowledge of introductory microeconomics, although some of this material

will be revised along the way (especially in the first couple of weeks).

2. How does ECON 201 relate to ECON 271?

Relative to ECON 271 (see the prescription below), there is much less emphasis on the technical derivations

of consumer and producer theory. ECON 201’s emphasis is on key concepts and applications; the technical

derivations are in ECON 271. ECON201 is much less technically demanding than ECON271.

If you are interested in the technical derivations as well as the applications (for example, if you are still

considering the possibility of becoming a professional economist, rather than simply learning some economics

for another intended profession), then you are are strongly encouraged to take ECON 271. ECON 271 is one

of the prerequisites for entry into the MEcon degree, and students intending to progress to the MEcon degree

do not have to take ECON 201. ECON 271 satisfies all of the prerequisite requirements that ECON 201 does

(for example, the major and minor requirements in Economics).

ECON 271: Intermediate Microeconomic Theory

(18 points, Semester 1)

The paper presents an analytic approach to intermediate microeconomics and emphasises the fundamental

conceptual foundations. The paper aims to demonstrate how microeconomics can be used to explain and

predict household and firm behaviour and to demonstrate the effect of government policy on household and

firm decision making. During the paper you will develop problem-solving skills, so reinforcing your

understanding of both microeconomic and mathematical concepts. By the end of the paper you should have

enhanced your ability to reason logically and accurately.

www.otago.ac.nz/courses/papers/index.html?papercode=ECON271

Paper Co-ordinator: Murat Genc

Prerequisites: BSNS 104 or BSNS113 and ECON 112 and one of FINQ 102, MATH 160, MATH 170

3. Minimum Reading for ECON 201

Each of the topics has course readings (detailed below) that are a minimum requirement. The readings are

from textbooks, The Economist magazine, and other sources and available from eReserve on Blackboard or

via the Library website. Where appropriate, relevant URLs will be provided in this course outline. This

approach allows us to tailor the readings to what we intend covering in the course (rather than the other way

round), and via The Economist articles, to provide up-to-date summaries of key economic theories and real-

world applications.

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Some students may want to look at a conventional textbook in its entirety. Although they are not part of the

required reading for ECON 201, Microeconomics textbooks available in the Library include:

E.K. Browning & M.A. Zupan, Microeconomics: Theory & Applications (various editions)

Robert H. Frank, Microeconomics & Behaviour (various editions)

4. Lecture Notes

It is our responsibility to run interesting lectures and tutorials, and guiding you to relevant reading. It is your

responsibility to attend and participate in lectures and tutorials, and to do the reading. You may also wish to

take your own lecture notes. Some notes will be provided in class, and there will be handouts for some

diagrams and excessively wordy material discussed in lectures (to save you copying them down).

As you probably already know, Blackboard https://blackboard.otago.ac.nz allows you to access course

materials, class notices and other resources. Blackboard is used to send e-mails to the whole class, so it is

important that you check your student e-mail and Blackboard regularly, or use eVision to redirect your emails

to your personal account (see below).

5. Student Webmail

To forward messages from your University e-mail address to an e-mail address that you use regularly, follow

these instructions:

1. Log into your StudentMail account using your student username and password

2. Click the Cog button (top right corner) > Options

3. Under Account, select the Forward your email shortcut under the Short Cuts menu on the right side

of the screen.

4. At the bottom of the screen, type in the email address you want your email to be forwarded to. You can

also choose to have a copy of these emails kept on your StudentMail account, so please check the box if

you would like this.

5. Click the Start forwarding link at the bottom of the page.

6. Tutorials

Tutorials are an integral part of ECON 201, and start in the 2nd week of lectures. You will be allocated to a

tutorial during the 1st week, and the lists, together with time and place, will be posted on ECON 201’s

Blackboard web page (and eVision). As well as the standard group discussion-type activities, many tutorials

will include economic games or experiments that are intended to demonstrate key microeconomic concepts.

Assignments will often be based on these games.

If you wish to change your tutorial group then you must consult Terry Kerr.

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7. Assessment

Assessment will consist of weekly assignments/essays and weekly multi-choice tests, both with ‘plussage’,

and a final exam, worth:

Weekly multi-choice tests 20%

Weekly assignments/essays 20%

Final exam 60%

The weekly multiple choice tests will be in the last 15 minutes of Tuesday’s lecture and consist of 10

questions covering the previous week’s lectures and readings.

For each test, if 8 or more of your answers are correct then you will earn 2 percentage points (to a maximum

total of 20 points); if fewer than 8 answers are correct then you will be awarded 0.2 of a percentage point per

correct answer (e.g. 5 correct answers equates to 1 percentage point; 4 correct equated to 0.8 percentage

points.). We will count the percentage points from your 10 best tests.

The weekly assignments will require you to do some preparatory reading, or they will relate to an aspect of

the game/experiment in that week’s tutorial. Each tutorial is worth 2 percentage points (to a maximum of 20

points); and we will count the percentage points from your 10 best results.

‘Plussage’ means that your performance in the weekly multiple choice tests and tutorial exercises will count

towards the final mark only if they exceed your performance in the final examination. In other words, if your

performance in weekly tutorials and/or tests is lower than your performance in the final exam, then your

overall grade will depend entirely on your performance on the final examination (100%).

As always, you should ensure that all submitted work is you own. Plagiarism is a form of dishonest practice.

It is defined as copying or paraphrasing another’s work and presenting it as one’s own. Any student found

responsible for dishonest practice in any piece of work submitted for assessment will be subject to the

University’s dishonest practice regulations, which may result in serious penalties, including forfeiture of

marks for the piece of work submitted, a zero grade for the paper, or in extreme cases, exclusion from the

University. The University of Otago reserves the right to use plagiarism detection tools.

You are advised to inform yourself about University policies concerning dishonest practice and take up

opportunities to improve your academic and information literacy. If necessary, seek advice from academic

staff, or the Student Learning Centre. Guideline for students is available at this link:

www.otago.ac.nz/study/plagiarism/ .The Library resource on ethical use of information is available via this

link: http://oil.otago.ac.nz/oil/module8.html.

8. Expected Workload

This is a 18-point course, so, using the University’s rule of thumb, you should plan to devote 12 hours per

week to this course during the semester. Four of these are spent in lectures and a tutorial, leaving 8 hours per

week for your own reading and study, internally assessed work and revision.

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9. Lecture Timetable

(See the next section, for course outline and readings.)

Week beginning

↓

Tuesday

(2.00 - 2.50)

Wednesday

(1.00 - 1.50)

Thursday

(2.00 - 2.50)

1 26 February Intro / Lecture 1 ♣ Lecture 2 ♣ Lecture 3 ♣

2 5 March Lecture 4 ♣ Lecture 5 ♣ Lecture 6 ♣

3 12 March Lecture 7 ♣ Lecture 8 ♣ Lecture 9 ♣

4 19 March Lecture 10 ♣ Lecture 11 ♣ Lecture 12 ♣

5 26 March Lecture 13 ♣ Lecture 14 ♣ Lecture 15 ♣

2 April Mid-sem. break Mid-sem. break Mid-sem. break

6 9 April Lecture 16 ♣ Lecture 17 ♣ Lecture 18 ♣

7 16 April Lecture 19 Lecture 20 Lecture 21

8 23 April Lecture 22 Lecture 23 Lecture 24

9 30 April Lecture 25 Lecture 26 Lecture 27

10 7 May Lecture 28 Lecture 29 Lecture 30

11 14 May Lecture 31 Lecture 32 Lecture 33

12 21 May Lecture 34 Lecture 35 Lecture 36

13 28 May Buffer / revision Buffer / revision No lecture

Lecturers: ♣ David Fielding

Viktoria Kahui

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10. Course Outline and Readings

The schedule while providing a guide to coverage, will be subject to flexibility where required. The number of

readings may seem dauting, but most of The Economist articles are just 2-3 pages long and a number of other

readings are support material for lectuer material. The direct web links to The Economist articles will only work

if you have a subscription. Otherwise, you will need to log onto the University of Otago Library server and find

the article through its search facility. There are staff in the Library who can explain to you what to do. The web

links to the newspaper readings should all work; the Wooding readings are available on the ECON201

Blackboard page, and journal articles are available through the E-reserve link on the same page.

INTRO

Lecture 1

(week 1)

Introduction to the course

Course overview, objectives, expectations and administration.

How much microeconomics have you forgotten in just one

semester (since BSNS104/ECON112 )?

We will highlight the material from BSNS104/ECON112 that you will need to

revise on your own. Some of it will be reviewed in our 1st topic below.

READING:

“The benevolence of self-interest”, The Economist, Dec 10th 1998

http://www.economist.com/node/179495

“Homo economicus”, The Economist, Apr 7th 2005

http://www.economist.com/node/3839749

“Micro stars, macro effects”, The Economist, Nov 20th 2012

http://www.economist.com/news/21567079-meet-economists-who-are-

making-markets-work-better-micro-stars-macro-effects

“It’s complicated”, The Economist, Oct 18th 2014

http://www.economist.com/news/finance-and-economics/21625824-jean-

tirole-has-won-nobel-prize-economics-his-work-competition-its

TOPIC 1

Lectures 2, 3, 4

(weeks 1 & 2)

REVISION:

Review and extensions of consumer choice theory

The derivation of demand curves. Indifference curves and budget lines. Income

and substitution effects of price changes, in preparation for Topic 2.

Your textbook and lecture notes from BSNS104/ECON112, or any other

introductory textbook.

READING: P. Wooding (2000) Introduction to Microeconomics, Sections 4.1 - 4.3

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TOPIC 2

Lectures 5, 6

(week 2)

Some topical applications of consumer choice theory

(a) How much to save or borrow

(b) How much to work or play

(c) If you are altruistic, how much to give other people

(d) Christmas presents

READING:

Wooding, Sections 4.4 (“Choosing between present and future

consumption”) and 4.5 (“The household’s choice between income and

leisure”)

“Nice work if you can get out”, The Economist, Apr 19th 2014

http://www.economist.com/node/2670702

“The economics of charitable giving”, The Regional Economist, Oct 2005,

www.stlouisfed.org/publications/regional-economist/october-2005

“An economist’s guide to gift-giving”, The Washington Post, Dec 25, 2013

https://www.ft.com/content/5cb1c5c4-c18b-11e6-9bca-2b93a6856354

TOPIC 3

Lectures 7, 8, 9

(week 3)

Economic psychology

Interesting aspects of human judgement and decision making based on the

seminal work of cognitive psychologists Daniel Kahneman and Amos Tversky

(2002 Nobel Prize winners): bounded rationality, asymmetric value functions,

and sunk costs. Also an introduction to neuro-economics: the neuroscience of

economic decision-making.

READING: “Rethinking thinking”, The Economist, Dec 16th 1999

http://www.economist.com/node/268946

“All too human”, The Economist, Oct 10th 2002

http://www.economist.com/node/1378682

“Cognitive limitations and consumer behaviour”, Chapter 8 of

Microeconomics and Behaviour, by R.H. Frank, McGraw-Hill, 2003

“Do economists need brains?”, The Economist, Jul 24th 2008

http://www.economist.com/node/11785391

“Not so smart now”, The Economist, Oct 29th 2011

http://www.economist.com/node/21534752

“Nudge nudge, think think”, The Economist, Mar 24th 2012

http://www.economist.com/node/21551032

“How can cows be good savings vehicles?”, The Economist, Oct 15th 2013

http://www.economist.com/blogs/economist-explains/2013/10/economist-

explains-6

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TOPIC 4

Lectures 10, 11, 12

(week 4)

Welfare economics

How basic microeconomics can be used to think about social justice and

fairness; how these ideas in economics connect to moral philosophy and

evolutionary biology.

READING: “Social welfare analysis of income distributions”

www.fao.org/docs/up/easypol/450/social_welfare_functions_041en.pdf

J. Harsanyi (1975), “Can the maximin principle serve as a basis for

morality? A critique of John Rawls’s theory”, American Political Science

Review 69, 594-606

https://www.jstor.org/stable/1959090

“Obama’s Rawlsian vision”, The Economist, Feb 19th 2013

http://www.economist.com/node/21572098/

K. Binmore (1998), “The evolution of fairness norms”, Rationality and

Society 10, 275-301

http://www.nopecjournal.org/NOPEC_1996_a12.pdf

T. Ghose, “Chimps have a sense of fairness”, LiveScience,

www.livescience.com/26245-chimps-value-fairness.html

TOPIC 5

Lectures 13, 14,

15, 16, 17, 18

(weeks 5 & 6)

International trade

How international trade can increase average income levels, and how it can

create winners and losers. Tariffs and other trade restrictions. Some

introductory political economy of international trade and tariffs.

READING:

Wooding, Section 9 (“International trade”)

“The miracle of trade”, The Economist, Jan 27th 1996

http://people.tamu.edu/~aglass/econ452/Economist2a.pdf

“Coming and going: Truth and myth about the effects of openness to trade”,

The Economist, Sep 29th 2016 http://www.economist.com/news/special-report/21707834-truth-and-myth-

about-effects-openness-trade-coming-and-going

“China’s changing comparative advantage: Trends and implications”

www.otago.ac.nz/economics/otago618300.pdf

“Liberating Middle Earth: International trade liberalisation and NZ”,

www.otago.ac.nz/economics/news/otago07516911111111111111.pdf

R. McCulloch (2005) “Protection and Real Wages:The Stolper-Samuelson

Theorem”, an essay in contribution to Michael Szenberg, ed., Samuelsonian

Economics and the 21st Century.

http://people.brandeis.edu/~rmccullo/wp/Stolper-Samuelson0405.pdf

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“Decline of the working man”, The Economist, April 28th 2011

http://www.economist.com/node/18618613

“Policies to help Britons who lose out from free trade are woefully

inadequate”, The Economist, Oct 27th 2016

http://www.economist.com/news/britain/21709298-how-not-cope-

globalisation-policies-help-britons-who-lose-out-free-trade-are

TOPIC 6

Lectures 19, 20,

21, 22, 23, 24

(weeks 7 & 8)

REVISION:

Market power — causes, consequences and cures

Revision of producer theory, cost curves and perfect competition and the

standard neoclassical theories of imperfect competition (monopoly, oligopoly

and monopolistic competition). Competition and anti-trust policy. Natural

monopolies. Innovation and “creative destruction”. The “new economy”.

Your textbook and lecture notes from BSNS104/ECON112, or any other

introductory textbook.

NEW READING: S.E. Landsburg (1995) Price Theory & Applications, Sections 10.1 (“Price

and output under monopoly”) and 10.2 (“Sources of monopoly power”)

“The growth machine”, The Economist, May 16th 2002

http://www.economist.com/node/1131416

“Catch the wave”, The Economist, Feb 18th 1999

http://www.economist.com/node/186628

“Has the ideas machine broken down?”, The Economist, Jan 12th 2013

http://www.economist.com/news/briefing/21569381-idea-innovation-and-

new-technology-have-stopped-driving-growth-getting-increasing

“Searching for the invisible man”, The Economist, Mar 9th 2006

http://www.economist.com/node/5601890

“In praise of entrepreneurs”, The Economist, Apr 26th 2007

http://www.economist.com/node/9070610

“Global heroes”, The Economist, May 12th 2009

http://www.economist.com/node/13216025

“An idea whose time has come”, The Economist, May 12th 2009

http://www.economist.com/node/13216053

“Knowledge is power”, The Economist, Sep 21st 2000

http://www.economist.com/node/375597

“Should digital monopolies be broken up?”, The Economist, Nov 29th 2014

http://www.economist.com/news/leaders/21635000-european-moves-against-

google-are-about-protecting-companies-not-consumers-should-digital

“Everybody wants to rule the world”, The Economist, Nov 29th 2014

http://www.economist.com/news/briefing/21635077-online-businesses-can-

grow-very-large-very-fastit-what-makes-them-exciting-does-it-also-make

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TOPIC 7

Lectures 25, 26, 27

(week 9)

REVISION:

Strategy

Game theory: instantaneous and sequential games; one-off and repeated games.

Applications of Game Theory to a wide range of strategic interactions between

individuals, firms and countries.

Your textbook and lecture notes from BSNS104/ECON112, or any other

introductory textbook.

NEW READING: H.R. Varian (1996) Intermediate Microeconomics: A Modern Approach,

Chapter 27 (“Game Theory”)

“Playing games with the planet”, The Economist, Sep 27th 2007

http://www.economist.com/node/9867020

“War games”, The Economist, Oct 13th 2005

http://www.economist.com/node/5019736

“Game theory in practice”, The Economist, Sep 3rd 2011

http://www.economist.com/node/21527025

“Nash’s Nobel Prize”, The Economist, May 24th 2015

http://www.economist.com/blogs/freeexchange/2015/05/archives

TOPIC 8

Lectures 28, 29, 30

(week 10)

Pricing & Auctions

A range of “cunning plans” that firms with market power can use to extract

consumer surplus: price discrimination; bundling, revenue or yield

management; two-part tariffs.

Auctions and are used to price and allocate an increasingly wide variety of

goods and services: Trademe Ebay, real estate, car, and art auctions,

government auctions for oil drilling rights, etc. How do auctions work and how

do their results relate to market prices and allocations?

READING: R.S. Pindyck & D.L. Rubinfeld (1995) Microeconomics (4th ed), Chapter 11

(“Pricing with market power”)

“The price is wrong”, The Economist, May 23rd 2002

http://www.economist.com/node/1143622

“Online prices: Caveat emptor.com”, The Economist, Jun 30th 2012

http://www.economist.com/node/21557755

“Pricing the surge”, The Economist, Mar 29th 2014

http://www.economist.com/news/finance-and-economics/21599766-

microeconomics-ubers-attempt-revolutionise-taxi-markets-pricing-surge

R. McGuigan, R.C. Moyer & F.H. deB. Harris (2002) Managerial

Economics: Applications, Strategy & Tactics, pages 31-32 (“Revenue

management at Delta Airlines”)

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TOPIC 9

Lectures 31, 32, 33

(week 11)

Market responses to limited information

Asymmetric Information: a key assumption of the competitive model is that

buyers and sellers have good information about product quality. This isn’t

always the case in reality. What happens?

READING: R.S. Pindyck & D.L. Rubinfeld (2005) Microeconomics (6th ed), Chapter 17

(“Markets with asymmetric information”)

“The lemon dilemma”, The Economist, Oct 11th 2001

http://www.economist.com/node/813705

“Secrets and agents”, The Economist, Jul 23rd 2016

http://www.economist.com/news/economics-brief/21702428-george-

akerlofs-1970-paper-market-lemons-foundation-stone-information

“The growth in America’s health-care spending is slowing”, The Economist,

March 7th 2015

http://www.economist.com/news/united-states/21645855-growth-americas-

health-care-spending-slowing-will-obamacare-cut-costs

TOPIC 10

Lectures 34, 35, 36

(week 12)

Economics of crime and poaching

People/organisations will commit a crime if the benefit exceeds the cost. We

will look at what economics can say about the ‘supply’ and ‘demand’ for crime.

READING: “Crime”, Ch 12 of Urban Economics by A. O’Sullivan, McGraw Hill, 2009

“The economics of maritime piracy”, Ch 3 of Economics of the

Oceans by P. Hallwood, Routledge, 2014

B. Moyle (2014), “The raw and the carved: shipping costs and ivory

smuggle”, Ecological Economics 107, 259-65

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A few other things worthwhile mentioning …

11. Student Feedback

We encourage your feedback. This can be in the form of contacting staff, participating in course evaluation

surveys and communicating with class representatives. Continual improvements will be made to this course

based in part on student feedback.

Class representatives

The class (or student) representative system is an avenue for encouraging communication and consultation

between staff and students. It provides you with a vehicle for communicating your views on the teaching and

delivery of the paper and provides staff with an opportunity to communicate information and gain constructive

feedback from students.

Volunteers for the role of class representatives will be called early in the semester. The OUSA invites all class

representatives to a training session, conducted by OUSA, about what it means to be a class representative

and some of the possible procedures for dealing with issues that arise. They also provide information on the

services that OUSA offers and the role OUSA can play in solving problems that may occur. The OUSA

provides support to class representatives during the semester. Departmental staff will also meet with class

representatives during the semester to discuss general issues or matters they wish to have considered. Your

class representative’s name and contact details will be posted on Blackboard.

Concerns about the course

We hope you will feel comfortable coming to talk to us if you have a concern about the course. The course

co-ordinator will be happy to discuss any concerns you may have. Alternatively, you can report your concerns

to the class representative who will follow up with departmental staff. If, after making approaches via these

channels, you do not feel that your concerns have been addressed, there are University channels that may aid

resolution. For further advice or more information on these, contact the departmental administrator or head of

department.