HSS646: Principles of Economics

[Cr:4, Lc:3, Tt:1, Lb:0]

Course Outline

This course will provide an introduction to the subject matter of economics. The course will examine how markets function and how supply and demand interact to determine prices, characteristic and types of market, market failure and role of government in the economy, macroeconomic issues and measurement, inflation and unemployment, international trade and macro policies.

BASIC CONCEPTS IN ECONOMICS

What is economics; scope and methods of economics: the science of economics, microeco- nomics and macroeconomics; core ideas: trade-offs, incentives, exchange, information and distribution; Economic systems and its types; Problem of economics: scarcity, choice, effi- ciency; Price, value, property rights; Role of institutions: market, state and society; Major markets: product, land, labour, capital; Welfare and social choice; Equilibrium concepts (partial and general).

MICROECONOMICS

Theory of Utility and Consumer’s Choice: Ordinal utility, cardinal utility, indifference curve, choice and preferences, marginal utility, law of diminishing marginal utility, budget constraint, optimal choice of consumer, income and substitution effects.
Theory of Demand, Supply and Market Equilibrium: Demand and supply schedules; price determination and market equilibrium; individual and market demands; shortages and surpluses; shifts in demand and supply; price, income, cross-price elasticity; elasticity of demand and supply; Consumer surplus.
Production, Cost and Theory of Firm: Economics of organisation; business organisation; factors of production; production func- tion; total, average and marginal products; law of diminishing returns; returns to scale; profits and costs; production in short-run and long-run; economies of scope; fixed, variable and total costs; average and marginal costs; opportunity costs and markets .
Perfect Markets: Behavior of profit maximizing firms; firms supply curve; total cost and shutdown condition; output under short-run and long-run.
Labour Markets: Labour supply decision (leisure, consumption and trade-off); demand for labour; labour demand, labour supply and equilibrium wage.
Capital Markets: Supply in capital market; Demand in capital market; saving behavior; capital investment (physical and human capital); time value of money and present discounted value.
The Efficiency of Competitive Markets: competitive markets and efficiency (consumer surplus and producer surplus); Pareto efficiency; general equilibrium.
Imperfect Markets: Types of imperfect competitors; imperfect information; externalities (private cost versus social cost); market failure
Monopoly output: Monopoly profits; price discrimination; economies of scale and natural monopoly; product differentiation, equilibrium with monopolistic competition; problem with natural monopoly; regulation and cross-subsidisation.
Oligopoly: Collusion and cartel; entry deterrence and trade-off; strategic behaviour and game theory; Nash equilibrium; Sequential game.
Imperfection with product market: Imperfect information, adverse selection and moral hazard; signalling, job search and advertising.
Imperfections in labour market: Labour union; wage differentials; motivating workers; Incentive and efficiency.

MACROECONOMICS

Introduction to different schools of thoughts (Classical, Keynesian and Monetarism); full- employment and growth; measuring output and growth (GDP and value of output); un- employment (forms of unemployment, flows and stocks, Okuns Law); Cost of living and inflation (inflation, deflation and stagflation); Consumer Price Index (CPI) and Producer Price Index (PPI); The full-employment model (deficit and surplus, growth rate and pro- ductivity, total factor productivity).
Money and price level: demand for money, price and velocity; money supply and neutrality of money; deposits and types of money (M1, M2, M3); money multiplier; Monetary policy.
Macroeconomic fluctuations: Recession, expansion and output gap; sticky wages and sticky price; short-run inflation rate and unemployment rate (Phillips Curve); aggre- gate expenditure, savings and income; Non-Accelerating Inflation Rate of Unemployment (NAIRU); Aggregate demand and inflation (ADI).
WORLD ECONOMY AND DEVELOPMENT: Absolute Advantage; Comparative Advantage; Opportunity Costs in Trade Theory; Globalisation and Trade; Role of macro policies (fiscal and money); Issues in public policy; International trade and trade policy.