Economics



Economics

2015-16

Alex Mann

holteconmann@, amann@

Website in progress

Standard Digital text:

CORE Economics Alternative digital text:

Welcome to Economics!

Economics has a reputation for being a difficult subject for people to master. One economist has described it as “common sense made complicated.” The common sense part is already part of your thinking – you already know that people can buy more of something when prices are cheaper. The complicated part is mostly about language and logic. Business people and economists have a specific vocabulary for describing the way people who are buyers and sellers behave and interact. Economists also have made rational logical decision making their foundation for understanding the world.

If you accept and use the new vocabulary as we move through your last year at Holt and remember that common sense describes rational decision making, you will be well on your way to understanding the way economists view the world. However, you must commit yourself to regular reading and practice with this subject in order to improve your understanding.

Why should you care about econ? The wages you earn, the taxes you already pay, the services your government provides – including the water you drink (or not in the case of Flint, Michigan), and your ability to retire will all be determined by economic ideas and decisions, by you and by the people you elect to represent you. There are many economic con artists out there, and it helps to understand how they think and speak.

It is also true, that you are living through a potentially revolutionary era in economics and politics. Wherever one looks – in Michigan, the US or around the world – economic changes over the past few years have created a debate that will redefine political and economic thinking for much of the 21 century, much like the reactions to the Great Depression shaped the 20th century. Studying the basic economic principles in this course will give you the foundation to understand this change. With understanding, you can more effectively control and protect your future income as the US and World economy changes.

General

The course is designed to introduce students to microeconomics and macroeconomics as a foundation for understanding how economic issues affect your life and your money. Throughout the course you will have opportunities to improve your writing, speaking, critical thinking, and consensus building skills. Consensus is not essential to decision making, but one of the problems that plagues our economy now is a stubborn refusal by our politicians to compromise and cooperate to achieve commonly agreed upon goals. With this in mind, we must pursue our study of economics TOGETHER. Our success in achieving our goals depends not only upon individual effort, but also upon how well we work together. Remember! Your classmates are depending upon you coming to class prepared, not just with answers, but with questions. Reading, doing homework, and asking questions will help everyone understand this new subject. If you take care of yourself AND encourage your fellow classmates, we will ALL improve our understanding of the study of economics. Remember, this course is one of your last required course before graduation! It should receive your BEST EFFORT as a conclusion to your high school career and a prelude to your future success.

Homework

Homework consists of two basic tasks: reading and working to solve sample economic problems. The work we do in class is meant to complement, not replace, working to understand economic ideas outside the classrooms, both alone and with your classmates. The text for this course provides the foundation on which the rest of what we do is built. There will be homework either assigned or understood for every day we meet. Any time I do not make an explicit assignment, you should review old material and/or preview new material. Homework will be prepared completely and neatly to receive credit. Normally, the homework will be the springboard to the work in the classroom. As such, we will often begin class meetings with student presentations of the homework assignment. These presentations will be rewarded, and students will be selected both ahead of time and randomly. By course end, all students will have had an equal number of opportunities to make presentations. I will occasionally check the homework of all students. I will also collect homework from a small number of students in order to check progress in detail.

Quizzes, tests, Exams, papers, oral presentations

We will have quizzes, tests, exams, and many opportunities with oral presentations. All major quizzes, tests, and exams will be announced and I will have more on the presentations and tests later.

Grading

Grading will be on a cumulative point system approximately as follows:

Tests (3-4), Quizzes (4-8) and other formal assessments (yet to be determined) – 60%-70%

Homework (daily) completion and management -- 10-20%

Final Exam (1) 20%

Semester outline

I. Basic Economic Concepts (1-2 weeks)

Reading: Chapters 1 & 2

A. Scarcity, choice and opportunity cost

B. Production possibilities curve & Marginal analysis

C. Comparative advantage, absolute advantage, Specialization and trade

D. Economic systems

E. Property rights and the role of incentives

F. Macroeconomic issues: business cycle, unemployment, inflation, growth

II. The Nature and Functions of Product Markets (5 weeks)

Reading: Chapter 3

A. Supply and demand (2 weeks)

1. Market equilibrium

2. Determinants of supply and demand

3. Price and quantity controls by government

Reading: Chapter 4

4. Elasticity: price elasticity of demand and supply

Reading Chapter 5

5. Externalities

a. Marginal social benefit and marginal social cost

b. Positive externalities & Negative externalities

c. Remedies

6. Public goods

a. Public versus private goods

b. Provision of public goods

Reading: Chapter 6

B. Production and costs (1 week)

1. Production functions: short and long run

2. Marginal product and diminishing returns

3. Short-run costs

4. Long-run costs and economies of scale

5. Cost minimizing input combination

Reading: Chapter 7-9

C. Firm behavior and market structure (2 weeks)

1. Profit:

a.  Normal profit & Accounting versus economic profits

b. Profit maximization: MR=MC rule

c. types of market structure

III. Labor and Capital Markets

Reading: Chapter 9-10

(1 week)

A. Derived demand

B. Marginal revenue product (value added by labor or capital)

C. Labor market and firms’ hiring of labor

D. Income distribution

Reading: Chapter 11 plus supplements

1. Equity

2. Sources of income inequality

IV. Measurement of Economic Performance

Reading: Chapter 12 (1 week)

1 National income accounts

1 Circular flow

2 Gross domestic product

3 Components of gross domestic product [C+I+G+(X-M]

4 Real versus nominal gross domestic product (Real + Inflation = Nominal)

2 Inflation measurement and adjustment

1 Price indices

2 Nominal and real values (Real + Inflation = Nominal)

3 Costs of inflation

3 Unemployment

1 Definition and measurement

2 Types of unemployment

3 Labor Force Participation Rate

4 “Natural” rate of unemployment

5 Capacity Utilization and “Employment Gap”

V. National Income and Price Determination

Reading: Chapter 13 plus supplements (1 week)

1 Aggregate demand

1 Determinants of aggregate demand [C+I+G+(X-M)]

2 Multiplier and crowding-out effects

2 Aggregate supply (Productive Resource Limitations)

1 Short-run Limits (only Land and Labor can change) and Long-run Limits (focus on more or better capital to increase per-capita growth in the long run )

2 Sticky versus flexible wages and prices

3 Determinants of aggregate supply

3 Macroeconomic equilibrium

1 Real output and price level

2 Short and long run

3 Actual versus full-employment output

4 Economic fluctuations (business cycle and shocks to demand and supply)

Reading: Chapter 14 plus supplements (2 weeks)

1 VI. Fiscal policy

1 Demand-side

Tax changes

i. Simple aggregate changes – increase/decrease

ii. Structural Changes – sources and distribution of tax burden

a. Government Spending Changes

i. Simple – increase/decrease

ii. Specific targets of government budget – road constructions vs. entitlements, Human/Physical Capital vs. “Pork” or relief

Supply-side effects

i. Laffer’s theory and its problems in the US context

ii. Evidence from the 1930s - 1980s (Krugman & Yergin)

iii. Goals and problems of regulation

iv. Goals and problems of deregulation

v. Goal: Limited, but effective rules – how’s that going these days?

Government Budget

Deficits

6 Cyclical

7 Structural

Debt

9 Benefits -- Gov’ts borrow just as individuals and corporations do

10 Human & Physical capital development

11 income and consumption smoothing.

12 Problems

13 Source of Debt (Loan shark vs. Credit Union vs. Parents)

14 Debt as % of income (GDP) & repayment

VII. Financial Sector Reading: Chapters 15-16 (2 weeks)

1 Money, banking and financial markets

1 Definition of financial assets: money, stocks, bonds

2 Measures of money supply

3 Banks and creation of money

4 Money demand

5 Money market

6 Loanable funds market

2 Central bank and control of the money supply

1 Tools of central bank policy

2 Quantity theory of money [MV=PQ, assume V is constant or stable]

3 Real versus nominal interest rates

Inflation, Unemployment, and Stabilization Policies

1 Government Budget

Deficits

3 Cyclical

4 Structural

Debt

6 Benefits -- Gov’ts borrow just as individuals and corporations do

7 Human & Physical capital development

8 income and consumption smoothing.

9 Problems

10 Source of Debt (Loan shark vs. Credit Union vs. Parents)

11 Debt as % of income (GDP) & repayment

Reading: Chapter 1 plus 17

Economic Growth and Productivity (1 week)

1 Investment in human capital

2 Investment in physical capital

3 Research and development, and technological progress

4 Growth public policy debate

Reading: Chapter 18

Open Economy: International Trade and Finance (1 Week)

1 Balance of payments accounts

1 Balance of trade

2 Current account-

3 Financial (Capital) account

2 Foreign exchange market

1 Demand for and supply of currencies

2 Exchange rate determination

3 Currency appreciation and depreciation

3 Net exports and financial capital flows

4 Links to financial and goods markets-

Weekly Reading schedule

(MB is McConnell and Brue book)

Unit I: Basic Concepts and Intro to Markets; McConnell and Brue pp. 3-113]

MicroEcon

Week

1. [MB: 3-48]

a. Resources and Scarcity

b. choices and Opportunity cost

c. factors of production = productive resources

d. opportunity cost, trade, and specialization

e. Marginal thinking

2. [Excerpts from Smith, Marx, Keynes, Hayek, Friedman, Chang]

a. Organization: Political Economy

b. Individuals, State, Non-State groups – Corporations, Unions, Co-operatives

c. Defining the relationships among State, Individuals, and Non-State groups

i. Smith and Marx

ii. Keynes and Hayek/Friedman

d. Markets and the debate over “freedom”

i. Chang

ii. Friedman

3. [MB: 48-90]

a. Demand and Supply in the market

b. Price and Quantity Relationship

i. Influence on Consumers

ii. Influence on Producers

c. Non-Price influences on the market

d. Elasticity: Consumer and Producer response to Prices: Can/Will we change our patterns quickly?

4. Elasticity [MB: 90-114] [MB: 90-114]

a. Elasticity continued

b. Unintended consequences – Externalities [MB: 96-103]

5. Market failure [MB: 96-103]

i. Negative Externalities

ii. Positive externalities

a. Gov’t Solutions for Market Failure

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