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
- 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