Foundations in Economics (2020)

Microeconomics

Session 2: Demand and Supply Model

Sessions 4-7: Theory of the Firm

Macroeconomics

Sessions 9 & 10: Macroeconomics

A. Overview

Session 11: Models

3. Keynesian Short Run Policy

4. Classical Long Run Policy Model (optional readings)

Session 12: Financial Sector and Monetary Policy ignore

2. Aggregate Demand (AD) & Aggregate Supply (AS) Model

1. Economic Growth vs Business Cycles vs Structural Stagnation

Session 8: International Trade Models

D. DD and SS price elasticities

C. Using Supply and Demand

A. DD, SS and Equilibrium

B. Consumer and Producer Surplus

Session 1: Welcome

A. About the Course

Assessments

Online Assessment (40%)

Practice Quizzes (10%)

Final Examination (50%); 7 Dec 2020 7.30 pm - 9.30 pm

Session 3: Role of Government

B. Price controls

Price Floor

A. Taxation

Session 12: Revision Week

C. Revision

B. Measuring Aggregate Economy

Supply-side Policies

2. Unemployment

Actual Unemployment Rate

Frictional Unemployment

c. Equilibrium AD-AS

b. Aggregate Supply (AS) SR and LR

Long Run Adjustments

a. Aggregate Demand (AD)

Why AD Downward Sloping

International Effect

Money Wealth Effect

If government intervenes

Monetary Policy

3. Sources of Growth

Institutions

Investment and Capital

Available Resources

Technological Development

Entrepreneurship

2. Models

Classical Growth Model

New Growth Theory (ignore)

1. Functions of Money

B. Tariffs

Welfare Effects

Price Ceiling

Burden of Taxation

Elasticity of SS and DD

Examples

C. Rent Seeking

Apartment rental Market

C. Market Structure

2. Monopoly (ignore)

1. Perfect Competition

A. Production and Cost Analysis I (Short Run)

2. Production Function

3. Costs

Short Run and Long Run Costs

Total Cost (TC) (Fixed Cost FC + Variable Cost VC)

Relationship Between

B. Production and Cost Analysis II (Long Run)

ATC = AFC + AVC

2. Long Run ATC

Economies of Scale

Constant Returns to Scale (minimum efficient level)

Diseconomies of Scale

Profit Maximisation Rule (MR=MC, P = MC)

Short Run: Economic Profit > 0; Long Run: Economic Profit = 0

Profit Maximisation (MR=MC; P > MC)

Welfare Loss from Monopolist

3. Monopolistic Competition (ignore)

Profit Maximisation (MR=MC; P>MC)

Short Run: Economic Profit > 0; Long Run: Economic Profit = 0

Shift in Curves

Movements along Curves

Quantity Demand and Demand

Quantity Supply and Supply

Increasing & Decreasing Marginal Productivity

Luxury tax on yachts (SS inelastic)

Sales tax (DD inelastic; DD elastic with online purchases)

Marginal Product and Marginal Cost

SR and LR Business Decisions (5 scenarios)

Exit Business (P<Min LR-ATC)

MC curve is Firm's SS curve

Total Product and Total Cost

MR below P (DD Schedule)

Price Discriminating Monopolist

Demand Elasticity, Total Revenue

Application: Singapore Cab fare hikes, 2008

Consumer and Producer Surplus

1. Role of the Firm

Transformation of factors of production

Goal: Profit Maximization (Profit=TR-TC) - Session #5

Agriculture market

Distinguish

MR-MC (numbers and graph)

TR-TC (numbers and graphs)

Calculus

(iii) Min Loss (Min AVC < P < Min ATC); do not shut down

(ii) Zero Profit (P=min ATC)

(iv) Shut Down Temporarily (P < Min AVC); do not continue producing

(i) Max Profit (P > Min ATC)

Example: Sugar Refinery

Total Product TP (Average Product, Marginal Product)

Envelope: Short Run and Long Run ATC

1. Production Decision in LR

Least Cost Input Combination (economically efficient)

Iso-cost and Iso Quant

3D Diagram

Structural Unemployment

Real vs Nominal GDP

Approach

Limitations of GDP

Classical Economists (non-activities policies)

Keynesian Economists (activities government policies)

Perfect (1st degree)

Market segmentation (3rd degree)

Tariffs by Small Nation (Guatemala, motorcycle)

Revenue Effect (c)

Tariffs for Large Nation (US, w/machine)

Consumption Effect (d)

Production Effect (a)

Protective Effect (b)

Terms of Trade Effect (e)

A. Administrative Announcement

B. Group Discussion

Surviving the trade war (July 2019)

Identify 4 concepts

Tips for Final Exam

Course Feedback

Preliminary Release of Online Assessment

Relationship (3 variables)

Optional: Unemployment and Growth (Okun's Law)

Optional: Inflation and Unemployment (Phillips Curve)

Price and GDP (AD-AS Model)

Upward Sloping (New Keynesian)

Perfectly Inelastic (Classical)

Recessionary Gap

Target Rate of Unemployment / NAIRU / NRU

(c) Income Approach (Renumeration, Profit, Tax)

(a) Expenditure Approach (Y=C+I+G+NX)

(b) Output Approach (Mfg, Wholesale and Retail, Finance, Construction)

Circular Flow Model, National Accounting Identity

Inflation

GDP Deflator

Consumer Price Index (CPI)

Producer Price Index (PPI)

Personal Consumption Expenditure Deflator

Cyclical Unemployment

Perfectly Elastic (Keynesian)

Sticky Wage

Sticky Prices (Menu Cost)

Interest Rate Effect

Optional: Derive AD from IS-LM Model

Say's Law

Solow Growth Model (1956))

Savings-Investment-Capital Accumulation

Technology

Diminishing MPK, MPL

Steady-state

Learning by Doing

Knowledge

Increasing Returns

AD-AS Model (LAS); Production Possibility Curve

2. Different Measures of money

Monetary BASE

Liquid

Unit of Account/Medium of Exchange/Store of Wealth

4. Transmission of Monetary Policy

Goals of Central Bank

Stable Prices

Moderate l/t i/rates

R: Reserves in BANKS

C: Cash & Coins in CIRCULATION (or, M0)

MB = C + R = Currency in CIRCULATION + Reserves in BANKS

C. Economic Concepts

B. The Study of Economics

Circular Flow Model

Coordination Problems

How to produce?

Whom to produce for?

Invisible Hand Theory (DD and SS model)

Scarcity, Trade-offs & Opportunity Costs (as individual)

Example: History and Economics (time constraint)

Example: Mugs and Pots (time constraint)

Example: Cartoon; Mum and Daughter (budget and time constraint)

Production Possibility Curve (national level; guns and butter)

Constant Opportunity Cost

Increasing Opportunity Cost

Application: Harley-Davidson (1982) ITC

Example i: Hurricane Irma & Oranges (2017)

Platforms

SMU eLearn

McGraw-Hill's Connect

What to produce?

Maximising welfare

Market equilibrium and disequilibrium,

Example ii: High gasoline prices & Oranges (2011)

Example iii: Rising middle class & edible of oils (2008)

Example iv: Improving life style, technology & Obesity (2009)

Example: Glady's demand for gasoline

Unit elastic demand

Inelastic demand

Elastic demand

Example: DD for iTunes

Tenants face "Inelastic SS"

Tenants will lobby government to prevent rental rise

Farmers face "Inelastic DD"

Farmers will lobby government to restrict price fall

A. Background

Trade data

Balance of trade & Net International Position

Harrods-Domar Growth Model (1940's)

Savings-Investment; Labor; Technology (A)

Policies (higher S, n, A)

3. Print and Create Money / Fractional Reserve Banking

Central Bank (prints and issues bills): Treasury Department

Commercial bank (fractional reserve banking)

M0 / M1 / M2 / M3

Examples: US and Singapore Money Supply

Money multiplier = 1 / Reserve Ratio

Reserve Requirement Ratio

Example: Steak and seafood (budget constraint)

Depict scarcity, trade-off and OC

Optional

Derive DD schedule (for coffee)

Consumer optimization (2-goods; Coffee and Beer)

Consumer optimization (work and leisure)

Example: Demand for coffee (graph / slope / coefficients)

It helps to know where you are on the DD schedule!

Production Function: Labor and Capital Q=f(A, L, K)

Average Product and Average Cost

SR: Fixed inputs + variable inputs

LR: all inputs are variable

Marginal Cost

unintended consequences

Create shortage of apartments

Creates surplus of workers (problems is bigger in LR, when SS and DD becomes more elastic)

(Rwanda's Potato Prices, 2017)

(Toronto's Rent Control, 2018)

(US Minimum Wage, 2018)

(i) Choose the production technique, given the technology available

(ii) Ensure the firm is on the production function

(iii) Choose the least cost input combination (K,L) to produce given output

Context: Lim Kee Food Manufacturing

Choose the price to sell the good (price taker / price setter?)

Choose the quantity to sell (affect cost and revenue)

Why U-shaped cost curve? Diminishing MPL

Why MC cuts through the min points of AVC and ATC?

Price-taker vs price setter

Individual DD curve faced by single firm X

Market demand curve in industry

Beveridge Curve

  1. Background

Different school of thoughts / New Synthesis

Watch 2/3 videos

Data (US and Singapore)

Combine AD-AS (SR-midpoint-LR)

Shift in SR-AS

Shifts in LR-AS

Recessionary gap

Expansionary gap

Short run Equilibrium

Shifts in AD

Shifts in SR-AS

Apply to 4 scenarios for US data

Inflationary Gap

If market is left on its own

Fiscal policy

shifts in SR-AS

changes in factor prices

Justify: Dynamic feedback effects

Recessionary gap

Self-correction (SR-AS)

Expectations, self-full filling prophesy

Required Reserves

Excess Reserves

Fed Funds Rate

Reserve Ratio

Max Employment

Expansionary MP

Contractionary MP

Taylor Rule

MP after Great Recession

Explain

Analyze

Evaluate