ECON 2101 MICROECONOMICS · PDF fileECON 2101 MICROECONOMICS 2 ... 4.1 WORKLOAD 6 ... A Tutorial Program of Discussion Questions and Review Questions is provided for tutorial

SCHOOL OF ECONOMICS

ECON 2101 MICROECONOMICS 2

SESSION 1, 2006

COURSE INFORMATION AND LECTURE SCHEDULE

Lecturer in Charge:

Peter Kriesler Room JG101

Tele:93853373 [email protected]

Course Administrator:

Ernie Teo Room JG 132

Tele 93851346 [email protected]

Microeconomics 2 Website http://vista.elearning.unsw.edu.au/

MICROECONOMICS 2 ECON 2101 Page- 1

CONTENTS PAGE 1. TEACHING STAFF 2 2. INFORMATION ABOUT THE COURSE 2.1 UNITS OF CREDIT AND CLASS HOURS 2 2.2 LECTURE TIMES AND LOCATIONS 2 2.3 TUTORIAL GROUP ALLOCATIONS 3 2.4 RELATIONSHIP OF THIS COURSE TO OTHER COURSES 3 2.5 APPROACH TO LEARNING AND TEACHING 3 3. COURSE AIMS AND OUTCOMES 3.1 COURSE AIMS 3 3.2 STUDENT LEARNING OUTCOMES 3 3.3 TEACHING AND LEARNING STRATEGIES 4 4. STUDENT RESPONSIBILITIES AND CONDUCT 4.1 WORKLOAD 6 4.2 ATTENDANCE 6 4.3 GENERAL CONDUCT AND BEHAVIOUR 6 4.4 KEEPING INFORMED 6 4.5 GENERAL RESPONSIBILITIES 6 5. ASSESSMENT 5.1 FORMAL REQUIREMENTS 6 5.2 ASSESSMENT DETAILS 6 5.3 SPECIAL CONSIDERATION AND SUPPLEMENTARY EXAMS 8 6. ACADEMIC HONESTY AND PLAGIARISM 9 7. STUDENT RESOURCES 7.1 COURSE WEBSITE 11 7.2 TEXTBOOK AND READINGS 12 7.3 OTHER RESOURCES, SUPPORT AND INFORMATION 13 8. CONTINUAL COURSE IMPROVEMENT 14 9. LECTURE SCHEDULE 15


1. TEACHING STAFF The Course Administrator is Ernie Teo (JG Rm 132; Ph. 93851346) email: [email protected]). Any questions regarding administrative matters (such as your allocation to a tutorial group) should be directed to the Course Administrator. The Lecturer-in-charge is Peter Kriesler (JG RM 101; Ph. 9385 3373, email: [email protected] ).The Lecturer-in-charge is responsible for the overall direction and content of the course. LECTURERS: Weeks 1 - 7: Associate Professor R. Conlon

[email protected] � JG 212 ph: 9385-3565

Weeks 8-14: Associate Professor. P. Kriesler [email protected]

� JG 101 ph: 9385-3373

A list of tutors for the course will be published on the course Web site. You should feel free to approach your lecturer about any academic matter. All lecturers and some tutors will have specific consultation hours. These hours will be posted on the course website. Lecturers and the Course Administrator may be contacted by e-mail, however, e-mail is not an appropriate medium for resolving technical questions regarding course material. These should be asked of your tutor or lecturer in consultation hours. Associate Professor R. Conlon will not be available after week 7. 2. INFORMATION ABOUT THE COURSE 2.1 UNITS OF CREDIT AND CLASS HOURS This course is worth 6 units of credit. There are 2 x 1 hour lectures per week and 1 x 1 hour tutorial class 2.2 LECTURE TIMES AND LOCATIONS Lectures are on:

Tuesday 11.00-12.00 CLB 7 Thursday 11.00-12.00 CLB 7

2.3 TUTORIAL GROUP ALLOCATIONS Enrolment in tutorials is via www.my.unsw.edu.au Tutorials start in week 3. From week 3, moving from one tutorial group to another will not be permitted unless you have compelling reasons. You should consult the Course Administrator about these matters. As tutorial questions form an integral part of this course, attendance at tutorials is compulsory. Attendance also implies that you will be fully prepared to enter into any discussion and answer any question raised, so students are advised to prepare answers in advance. It is imperative that you attend the group to which you are allocated. If, owing to illness or other exceptional circumstances, you are unable to attend your usual tutorial, you may try to attend another tutorial in the same week. However, you are expected to attend your usual tutorial class at least 7 times during the session. In certain circumstances, such as


where a request for special consideration is made (see below), tutorial attendance will be taken into account in determining your final assessment or whether a supplementary exam is offered. TUTORIALS IN THIS SUBJECT WILL BEGIN IN WEEK 3, COMMENCING 13 MARCH. 2.4 RELATIONSHIP OF THIS COURSE TO OTHER COURSES This course provides a broad overview of Microeconomics at an intermediate level. It builds on the foundation established in Microeconomics 1 Econ1101. 2.5 APPROACH TO LEARNING AND TEACHING The philosophy underpinning this course and its Teaching and Learning Strategies (see 3.3 below ) are based on “Guidelines on Learning that Inform Teaching at UNSW. These guidelines may be viewed at : www.guidelinesonlearning.unsw.edu.au. 3. COURSE AIMS AND OUTCOMES 3.1 COURSE AIMS The aim of this course is to provide an intermediate course in microeconomic theory. The subject seeks to explain how societies choose to allocate and distribute their resources. In particular we will investigate whether and how markets may coordinate economic activity, and consider the occasions when market allocation is less then perfect. How do firms make decisions about price, output and labour practices in imperfectly competitive markets, with imperfect information? 3.2 STUDENT LEARNING OUTCOMES

1. Demonstrate an understanding of economic concepts and their appropriate usage 2. Construct economic arguments in terms of these concepts, and present logical economic

arguments in both written and oral form 3. Apply economic models to the analysis of relevant economic issues.

The course aims to provide benefits to students in terms of:

• The ability to use economic principles in ‘rational’ decision-making; • An understanding of the different market environments in which management, social, and

individual business decisions must be made; • An understanding of the causes and implications of “market failure”. • An ability to apply economic principles to practical problems

3.3 TEACHING AND LEARNING STRATEGIES The examinable content of the course is defined by the Text references given in the Lecture Schedule, the content of Lectures, the readings in the Course Notes and the content of the Tutorial Program. Lectures The purpose of Lectures is to provide a logical structure for the topics that make up the course; to emphasise the important concepts and methods of each topic, and to provide relevant examples to which the concepts and methods are applied. Tutorials


The purpose of tutorial meetings is primarily to provide an opportunity for small group discussion of issues to which economic concepts and methods can be applied, and to use those concepts and methods to understand practical problems. (The Discussion Questions).

A Tutorial Program of Discussion Questions and Review Questions is provided for tutorial meetings. Tutorial questions are attached to this handout. For each week you will find two types of questions. Review questions are designed for your own self study and to strengthen basic analytic skills. Discussion questions test whether you can apply what you have learned. Answers will not simply be found by looking in your lecture notes or your text. Students should prepare these questions in advance. Students who are unclear about any of the questions should seek additional help from their tutor. Only discussion questions will be covered in tutorials. It is not expected that all discussion questions will be necessarily covered in tutorials. Out-of-Class Study While students may have preferred individual learning strategies, it is important to note that most learning will be achieved outside of class time. Lectures can only provide a structure to assist your study, and tutorial time is limited. An “ideal” strategy (on which the provision of the course materials is based) may include: *Reading of the relevant chapter(s) of the text and of the Course Notes and accessing the lecture overheads from the course website before the lecture. This will give you a general idea of the topic area. *Attendance at lecture. Here the context of the topic in the course and the important elements of the topic are identified. The relevance of the topic should be explained. * Attempting the Review Questions, checking their solutions, and preparing answers for the Discussion Questions. This will identify the things you need to do to demonstrate your understanding of a topic, and guide your re-reading of specific parts of the text. This will also provide a self-test of your understanding, and identify those parts of the topic with which you have problems. This should be done after the lecture and before the following week’s tutorial. * Attending Tutorials Tutorials reinforce the contents of the lecture by applying the general principles to practical issues. 4. STUDENT RESPONSIBILITIES AND CONDUCT 4.1 WORKLOAD It is expected that you will spend at least ten hours per week studying this course. This time should be made up of reading, research, working on exercises and problems, and attending classes. In periods where you need to prepare for a Tutorial Presentation or an examination, the workload may be greater.

Over-commitment has been a cause of failure for many students. You should take the required workload into account when planning how to balance study with employment and other activities. 4.2 ATTENDANCE Your regular and punctual attendance at lectures and seminars is expected in this course. University regulations indicate that if students attend less than eighty per cent of scheduled classes they may be


refused final assessment. Only those students maintaining a passing grade prior to the final examination and who have attended at least seven (7) tutorials will be considered for a supplementary examination at the end of the session. 4.3 GENERAL CONDUCT AND BEHAVIOUR You are expected to conduct yourself with consideration and respect for the needs of your fellow students and teaching staff. Conduct which unduly disrupts or interferes with a class, such as ringing or talking on mobile phones, is not acceptable and students may be asked to leave the class, and/or refused final assessment. More information on student conduct is available at: www.my.unsw.edu.au 4.4 KEEPING INFORMED You should take note of all announcements made in lectures, tutorials or on the course web site. In particular you should check “Announcements” on the course website at least once a week. From time to time, the University will send important announcements to your university e-mail address without providing you with a paper copy. You will be deemed to have received this information. 4.5 GENERAL RESPONSIBILITIES It is your responsibility to ensure that: 1. You are recorded by the University as being correctly enrolled in all your courses. The last day

for students to discontinue without financial penalty is Friday March 31 and the last day to discontinue without academic penalty is Friday 28 April.

2. You have successfully completed all prerequisite courses. Any work done in courses for which prerequisites have not been fulfilled will (unless an exemption has been granted) be disregarded, and no credit given nor grade awarded.

3. You organise your affairs to take account of examination and other assessment dates where these are known. Be aware that your final examination may fall at any time during the session’s examination period. The scheduling of examinations is controlled by the University administration. No early examinations are possible. The examination period for Session 1, 2006 falls between 16 June and 4 July.

4. When the provisional examination timetable is released (May 9), ensure that you have no clashes or unreasonable difficulty in attending the scheduled examinations. The final examination timetable is released on Tuesday 30 May.

5. You keep the University informed of all changes to your contact details.

6. You make a copy of all work submitted for assessment, and keep returned marked assignments and essays.

A full list of UNSW Key Dates is located at: https://my.unsw.edu.au/student/resources/KeyDates.html

5. ASSESSMENT 5.1 FORMAL REQUIREMENTS In order to pass this course, you must:

achieve a composite mark of at least 50; and make a satisfactory attempt at all assessment tasks (see below).


5.2 ASSESSMENT DETAILS Assessment will consist of : Mid Session exam Tuesday 11 April (Week 7) 20% Research Report Due Friday 2 June Details Below 20% Comprehensive final examination 60%

SATISFACTORY PERFORMANCE IS REQUIRED IN ALL PARTS OF THIS COURSE

Final results for this course will be mailed to you. They will not be posted or transmitted to you in any other manner. This is the policy of the School of Economics. Requests for early results will not be granted Some students require a credit in Microeconomics 2 in order to obtain accreditation for other courses. You should note that this does not provide grounds for requesting reconsideration of your mark in Microeconomics 2. MID-SESSION EXAMINATION: The mid-session exam will be held from 11.00-12.00 am Tuesday, 11 April at CLB 7, the regular lecture venue. You are advised to be there by 10.50 am. The exam will consist of 20 multiple choice questions worth a total of 20 marks. The lecture material from the topics up to and including general equilibrium and welfare will be examinable (Week 6). . The purpose of this assessment is to test knowledge of concepts, the ability to use economic reasoning to make deductions, and to perform simple calculations. Note: There will be NO supplementary exam offered for the Mid-Session Examination. Students who fail to attend the Mid-session Examination will need to apply for Special Consideration. You should make every effort to take the mid-session examination. No other mid-session examination will be given. Any student who, for reasons of serious illness, cannot attend the exam will need full and convincing documentation of that illness. Students who are found to be genuinely too ill to have attended the mid-term exam will have their final exam reweighted to count for 80% of their final assessment. In all other cases of non-attendance students will receive a grade of zero. Special Consideration applications must be made within 3 days of the Exam through NewsouthQ in the Chancellery and NOT through the lecturer-in-charge or course administrator (you should advise the course administrator that you have made an application). You will need to provide full documentation of the reason for the absence (eg, illness). Employment obligations of any kind are not acceptable reasons for absence from any test/examination. ASSIGNMENT: RESEARCH REPORT ON THE NATURE OF COMPETITION IN FIRMS The aim of this assignment is to develop skills in conducting research in an area of Microeconomic theory, in applying theory to real world practice, and in using knowledge of real world practice to evaluate economic theory. The assignment will investigate ways in which a particular firm competes with its rivals, will identify an appropriate model to describe the nature of this competition, and will evaluate how accurately the model does in fact describe that firm’s actual practice. The assignment will involve both primary and secondary research. Primary research entails gathering information about the nature of a specific company’s interaction with its competitors through observation and interviews. Secondary research involves developing an understanding of relevant economic models from published, printed or electronic sources such as academic and professional journals, reports, newspapers and the Internet. A major component of the assessment


for this assignment will be the students’ ability to conduct both types of research and to make links between them. The assignment will be conducted in groups of up to 4 students. Groups will

be allocated in tutorials in Week 4. The assignment has a number of stages. These are incorporated into the lecture and tutorial program and will be assessed at various times during the session. Groups will have the opportunity to discuss their research and any problems they are encountering, and to receive feedback on their progress, in tutorials in Week 8. A formal presentation of the final report will occur in tutorials in Weeks 11 and 12. Attendance is compulsory for tutorials in these weeks, and marks will be deducted from groups missing students. Each group will hand in a report by 3.00 Friday 2 June. The report is to be submitted electronically, via WebCT as a word document. (PDF files will not be accepted). The essay coversheet appended to the end of this handout must be filled in and accompany each report. Reports will not be accepted without coversheets. Assignment Question: Observe the nature of competition in a particular firm of your choice. Use that knowledge to identify the market structure which best describes that firm’s economic environment. having identified the most appropriate market structure, choose a model which captures the main features of the competitive process most relevant to that firm. Use this to consider how useful is economics in understanding the firm’s economic environment. Assessment criteria (breakdown for written assignment):

Clear concise explanation of the nature of competition faced by the firm, based on its interactions with its market rivals.

10%

Analysis of the structure of your firm’s market with reference to standard market structures. Choice of an appropriate model. Your aim is to compare models in order to choose the one which you consider most relevant to the competitive interactions facing your firm.

40%

Analysis and evaluation of how accurately the model chosen describes the firm’s actual; practise

20%

Based on the previous discussion, the usefulness of economic theory in explaining the nature of competition in this particular industry

20%

Appropriate presentation, structure, referencing, assignment length Originality in use of references and other resources

10%

Assessment of Assignment

Formal presentation of report, Tutorials Weeks 11 and 12 5% Written report, Friday 2 June Week 13 15%

Stage 1 Primary Research a. Observe the nature of competition in a particular firm of your choice. This will involve visiting the company, observing, speaking with the appropriate people within the company and gathering relevant data to determine how that firm interacts with its market rivals.


b. Use that knowledge to identify the market structure which best describes that firm’s economic environment. Groups will report briefly on their findings in Stage 1 of the research in tutorials in Week 8. The purpose of this report is to enable your tutor and other students to make useful suggestions on your work. Stage 2 Secondary Research Research models of the market structure which you have identified in Stage 1. Your aim is to compare models to choose the one which you consider most relevant to the market structure of the firm which you are observing. Examine and compare at least two dissimilar models. Groups will need to conduct independent research of the literature to identify appropriate economic models. Sources would include academic and professional journals, books, newspapers, the text book and the course packet. The Library will provide guidance in searching relevant catalogues, databases and electronic sources. Oral Presentation Each group will make a formal presentation in tutorials in Week 11/12. Groups will present an overview of their assignments. Stage 3 Written Report Each group will hand in a report by 3.00 Friday 2 June. The report is to be submitted electronically, via WebCT as a word document. (PDF files will not be accepted). Written Report This is to be in the form of a research report. The report will compare the economic model with the firm’s actual practice to determine how well it describes that practice. The report should have the following sections:

1. Introduction A brief description of the company and of the issues investigated.

2. Method An indication of how you conducted your research and how you obtained your information from both primary and secondary sources. Any limitations of your research and any problems you encountered obtaining information.

3. Findings and Discussion Analysis of the company’s interaction with its rivals Identification of an appropriate model to describe the nature of competition in that firm; reasons justifying the choice of that model, including a comparison with at least one other dissimilar model Analysis and evaluation of how accurately the model chosen does describe the firm’s actual practice

4. Conclusion Based on your research, a consideration of how useful economic theory is in explaining the nature of competition in this particular situation. Can economic theory provide guidelines for decision makers?


5. References A list of sources referred to in the report. Reports should be correctly referenced. Sources of facts and ideas must be acknowledged in the report, and listed in the References. The Harvard system is recommended. Any quotes or ideas which are not your own must be properly referenced. Within the text, such quotes or ideas must be referenced as follows: “This is unavoidable since imagined demand curves, unlike the ordinary demand curves of economic analysis, can only be thought of with reference to a given starting point” (Sweezy, 1953, p.409). The last page of your essay should include a list of your references arranged alphabetically according to the author's last name: Sweezy, P. (1953) "Demand Under Conditions of Oligopoly" in A.E.A. Readings in Price Theory. eds. K.E. Boulding and G.J. Stigler. London: Allen and Unwin, pp.404-409. Presentation of written report Reports should be of a high standard of writing and presentation. They should be typed, double spaced, with 2 cm margins. Length: 1500-2000 words maximum (excluding any footnotes, references, or bibliography). All lecturers in the department have been carefully trained to count. Keep to the limit. Excess words will simply be ignored and possibly fed to the office wombat. Further guidance on the preparation and presentation of reports is available, on line, from the EDU website at: http://education.fce.unsw.edu.au/undergraduate/onlineresources.html Due Date: Each group will hand in a report by 3.00 Friday 2 June. The report is to be submitted electronically, via WebCT as a word document. (PDF files will not be accepted). The essay coversheet appended to the end of this handout (an electronic copy of which will be provided on the course website) must be filled in and accompany each report. Reports will not be accepted without coversheets. Penalties for late submission - three marks off for each working day late. Essays submitted five days or later receive a grade of zero. No assignments will be accepted one week after the due date. Note: Any student failing to hand in an assignment will receive a failing grade for the course.

Extensions: Students are advised to begin work on this assignment as soon as possible; extensions will be given only under the most inconceivable circumstances. FINAL EXAMINATION: This will be held in the University examination period (June/July) and will be 2 hours long. The final exam will cover the entire course. The format of the examination will be: Part A: 2 short essay type questions from a choice of 4 Part B : 1 essay question from a choice of 2 Part C : 1 essay question from a choice of 2 Further information on the content of the Final Exam will be provided towards the end of session. The purpose of the final exam is to assess knowledge of economic concepts and their appropriate use, to test the ability to use economic reasoning to make deductions. It is important to note that a satisfactory performance in the Final Examination is required to pass this course.


5.3 SPECIAL CONSIDERATION AND SUPPLEMENTARY EXAMINATIONS A supplementary final examination may be offered to students who failed to attend the final examination for medical reasons, or whose performance during the final examination has been severely affected by illness, or other extraordinary circumstances that can be documented by the student. Supplementary examinations are not offered as a matter of course. The following conditions, must be fulfilled before such an application to sit for a supplementary final examination will be considered: (i) the student's performance during the session (based on the student’s tutorial attendance [students must attend at least seven tutorials in the tutorial they are formally enrolled for], their assignment mark and midsession exam mark) must be deemed to be at a satisfactory level by the lecturer-in-charge, and (ii) the student has applied for special consideration which is made through NewsouthQ within 3 days of the final examination, and the application is supported with full documentation. Notes: If a supplementary examination is granted, the format of that examination will be similar to that of the final examination. Students who are granted a supplementary examination will be advised of the date of the supplementary exam as soon as possible, and students have the responsibility to make themselves available to sit for the supplementary exam on the date specified. Information and policy about special consideration and supplementary examinations – it is recommended that there is a standard School policy, which is available on the School website and referred to in the course outline. 6. ACADEMIC HONESTY AND PLAGIARISM The University regards plagiarism as a form of academic misconduct, and has very strict rules regarding plagiarism. For full information regarding policies, penalties and information to help you avoid plagiarism see: www.my.unsw.edu.au/student/atoz/Plagiarism

Plagiarism is the presentation of the thoughts or work of another as one’s own.* Examples include: • direct duplication of the thoughts or work of another, including by copying work, or knowingly

permitting it to be copied. This includes copying material, ideas or concepts from a book, article, report or other written document (whether published or unpublished), composition, artwork, design, drawing, circuitry, computer program or software, web site, Internet, other electronic resource, or another person’s assignment without appropriate acknowledgement;

• paraphrasing another person’s work with very minor changes keeping the meaning, form and/or progression of ideas of the original;

• piecing together sections of the work of others into a new whole; • presenting an assessment item as independent work when it has been produced in whole or part in

collusion with other people, for example, another student or a tutor; and, • claiming credit for a proportion a work contributed to a group assessment item that is greater than

that actually contributed.† Submitting an assessment item that has already been submitted for academic credit elsewhere may also be considered plagiarism. The inclusion of the thoughts or work of another with attribution appropriate to the academic discipline does not amount to plagiarism.


Students are reminded of their Rights and Responsibilities in respect of plagiarism, as set out in the University Undergraduate and Postgraduate Handbooks, and are encouraged to seek advice from academic staff whenever necessary to ensure they avoid plagiarism in all its forms. The Learning Centre website is the central University online resource for staff and student information on plagiarism and academic honesty. It can be located at: www.lc.unsw.edu.au/plagiarism The Learning Centre also provides substantial educational written materials, workshops, and tutorials to aid students, for example, in: • correct referencing practices; • paraphrasing, summarising, essay writing, and time management; • appropriate use of, and attribution for, a range of materials including text, images, formulae and

concepts. Individual assistance is available on request from The Learning Centre. Students are also reminded that careful time management is an important part of study and one of the identified causes of plagiarism is poor time management. Students should allow sufficient time for research, drafting, and the proper referencing of sources in preparing all assessment items. * Based on that proposed to the University of Newcastle by the St James Ethics Centre. Used with kind permission from the University of Newcastle † Adapted with kind permission from the University of Melbourne.

7. STUDENT RESOURCES 7.1 COURSE WEBSITE The Microeconomics 2 website may be found among others of your courses at: http://vista.elearning.unsw.edu.au/ To log in, you will need to click on the blue UNSW, link on the middle of the page. Enter your student number prefixed with a lower case z and your unipass password and then click “Log in”. Then click on “ECON2101 – Microeconomics 2”. Students are expected to: • Make sure that they are officially enrolled in Microeconomics 2 • Familiarise themselves with WebCT • Access this site at least weekly as the site will contain important announcements about the

course, as well as lecture notes and tutorial solutions. In addition, it will carry most of the subject information, midsession exam results and tutorial allocations as well as a discussion forum where students will be able to discuss course related materials, as well as trial exam questions.

It will be assumed that all students have seen any notice posted on the course website. VistaWebCT information and support services can be found at: http://support.vista.elearning.unsw.edu.au/ 7.2 TEXTBOOK AND READINGS The textbook for this course is: The prescribed textbook for this course is: Frank, Robert H. (2006) Microeconomics and Behavior, Sixth Edition [McGraw-Hill, Inc.] Students are also required to purchase the “Microeconomics 2: Course Notes Session 1 2006” package from the University Bookshop, which will eventually be available on the web.


The publishers provide a range of support material for the textbook, including a study guide, a CD-ROM containing summaries and self tests, a book of topical applications, and a website. Information on accessing this support material is provided in the introduction to the text. While the support material may provide useful additional assistance to your study of the subject matter, the support material is not required reading. Students must make their own judgement as to whether accessing and using the support material is worthwhile. The examinable content of the textbook is defined by the Lecture Schedule and the Tutorial Program (see below). 7.3 OTHER RESOURCES, SUPPORT AND INFORMATION The University and the Faculty provide a wide range of support services for students, including:

• Learning and study support; • Counselling support; • Library training and support services; • Disability support services;

EDUCATIONAL DEVELOPMENT UNIT Additional learning support, tailored to the needs of FCE students, is available from the Education Development Unit (EDU) in the Faculty. The EDU offers a range of services for FCE students including: academic skills workshops run throughout the session; printed and on-line study skills resources e.g. referencing guide, report writing and exam preparation; a drop-in resource centre containing books and audio visual material that may be borrowed; a limited consultation service for students with individual or small group learning needs. More information about the EDU services including on-line resources, workshop details and consultation request forms are available from the EDU website. Contacts and location: EDU Web: http://education.fce.unsw.edu.au EDU Location: Room 2039, Level 2 Quadrangle Building EDU services are free and confidential and are available to students of the Faculty of Commerce and Economics. OTHER UNSW SUPPORT In addition to the EDU services, the UNSW Learning Centre provides academic skills support services for students. The Learning Centre is located on Level 2 of the Library and can be contacted by Phone: 9385 3890 or through their website: www.lc.unsw.edu.au .

Students experiencing problems of an academic or personal nature are encouraged to contact the Counselling Service at UNSW. This service is free and confidential and run by professional counsellors. The Counselling Service is located on Level 2, Quadrangle East Wing, and can be contact on 9385 5418.

Those students who have a disability that requires some adjustment in their teaching and learning environment are encouraged to discuss their study needs with the Lecturer in Charge or with the Equity Officer (Disability) prior to, or at the commencement of, their course The Equity and Diversity Unit can be contacted through 93854734 or www.equity.unsw.edu.au/disabil.html .

Students should be aware of Faculty Occupational Health and Safety policies and expectations.


See www2.fce.unsw.edu.au/nps/servlet/portalservice?GI_ID=SystemLoggedOutInheritableArea&maxWnd=_Staff_Info_OHS 8. CONTINUAL COURSE IMPROVEMENT Each year feedback is sought from students and other stakeholders about the courses offered in the School and continual improvements are made based on this feedback. UNSW's Course and Teaching Evaluation and Improvement (CATEI) Process (http://www.ltu.unsw.edu.au/ref4-5-1 catei_process.cfm) is one of the ways in which student evaluative feedback is gathered.

LECTURE SCHEDULE Week Starting Topic Text Reading (Frank) 1 27 February Revisiting demand and supply. Theory of

consumer behaviour Chapters 1,2

2 6 March Consumer behaviour (cont.) Chapters 3-5 3 13 March Risk and uncertainty, altruism. The theory of

the firm Chapters 6 Chapter 7: pp. 231-234 Chapter 9

4 20 March Theory of the firm (cont) Chapter 9, 10 5 27 March Perfect competition Chapter 11 6 14 April Perfect competition (cont)

General equilibrium and welfare economics Chapter 11 Chapter 16

7. NOTE: TUESDAY 11 APRIL SESSION EXAM. THURSDAY 18 APRIL Guest Lecture Colina Mason from EDU on Group[

Research and Presentation NO TUTORIALS IN THIS WEEK

MIDSESSION BREAK 14 – 23 APRIL 8 24 April NOTE: ANZAC DAY is Tuesday 26 April,

no classes on that day Monopoly

Chapter 12

9 1 May Monopoly & Monopolistic competition Chapter 13 pp. 478-498 Notes pp. 63-69, 97-107

10 8 May Monopolistic competition & Oligopoly Chapter 13 pp. 466-476 Notes pp. 68-98

11 15 May Oligopoly and strategic behaviour Chapter 13 pp. 454-466 Notes pp. 82-85

12 22 May Oligopoly and strategic behaviour & Labour markets

Chapter 14 Notes 48

13 29 May Labour markets (cont) and imperfect information

Chapter 14, Chapter 6

14 5 June Asymmetric information Chapter 6 pp. 210-214 Notes readings 19, 49

These readings are to be supplemented by the additional readings in the “Course notes” package, which are referenced as “Notes”.


TUTORIAL QUESTIONS

Students are required to prepare questions in advance of each week's meeting. There will usually be more questions than the lecturer will be able to cover given the limited time available. Those students desiring assistance with such questions are advised to see their tutor during consultation hours or by appointment. Remember, attempting to answer all review and discussion questions will provide a good self test of your knowledge

NO TUTORIALS IN THE FIRST 2 WEEKS WEEK 3 13/3

TUTORIAL 1

REVIEW OF MICROECONOMICS Reading: Frank - Chapters 1-5; Notes 1-4, 62, 71, 74 Review Questions 1. What is an economic model? What relationship does it have to an economic theory? What role do assumptions play in this process? Must these assumptions be realistic for an economist to reach a useful conclusion? 2. Explain the role that opportunity cost and choice play in economic theory. 3. How does the production possibility set illustrate the concept of opportunity cost? 4. What do demand and supply curves represent? What assumptions underlie the slope of these curves? What does a market equilibrium indicate? Why is it important in microeconomic analysis? 5. Draw a graph representing the demand and supply for pasta in Australia during 1958. Illustrate the effects on the graph of the following events considered separately.

a. Pasta worms and bad weather in Italy causes a loss of half the world's pasta crop. b. Consumption of pasta linked to sexual prowess and sweetness of breath. c. The price of pasta sauce rises. d. The price of tinned baked beans, a substitute good for pasta in Australia, rises. e. Income in Australia rises. f. Native pasta grown in Tasmania for the first time. g. A tariff is placed on all imported pasta.


6. What is meant by a consumer's indifference map? Explain the significance of the slope of an indifference curve.

a. What assumptions about human nature are necessary to derive indifference curves? How are indifference curves, given income, and prices used to derive demand curves for commodities. Illustrate this derivation graphically. b. Use indifference curves to distinguish between the income effect and the substitution effect of a price change. c. How does this theory of the consumer explain why demand curves are downward sloping and why demand curves shift with changes in income and changes in the prices of other goods?

7. What role does a budget line play in determining the optimal combination of goods for a consumer to choose? In what way is a budget line analogous to a production possibility frontier? Discussion Questions 1. During the last decade university degrees, including the MBA have become a necessary stepping-stone to assured success in the business world. Recent estimates indicate that this commonly held view may not be entirely true [Notes 2,3, 62, 71].

a. What is the opportunity cost of obtaining a degree? b. Under what conditions should an individual pursue such a degree? c. Should the prospective student simply apply to the university which generates the

greatest value of future returns for its students? Under what conditions would such a strategy yield unwanted results?

d. According to Ross Gittins (Notes 62, 71) the average rate of return on a university degree is 14.5%. Do you think that this rate applies to you? What factors will influence your expected return? Does the 14.5% represent the return on all costs? How would your answer to these questions be effected if there was a doubling in the numbers of graduates in all courses?

2 "Tea in England - Coffee in Europe" [Notes 4] attempts to explain the relative consumption of tea and coffee in England and France respectively. The explanation includes the relative prices of substitutes and complements as well as other demand and supply factors. Graphically illustrate the points made in the article. 3. The Gualala Hotel in Gualala, California supplies Swan Lager at their bar to satisfy the tastes of ten local expatriate Australians. Each Australian has an identical demand for a week's worth of drinking given by Qd = 100 - 10P. The bar's supply function is given by Qs = 500 + 100P.

a. Graphically and mathematically determine how many bottles of Swan Lager the Gualala Hotel sells in a week. b. A tariff of $1.00 a bottle is slapped on imported bottles of Swan Lager. How much revenue does the U.S. government receive from the Gualala Hotel per week from this tariff? How much of this is paid by the loyal Aussie drinkers? (Hint: Use graphical and mathematical analysis to first find the new equilibrium quantity of Swan Lager sold.)

4. Use a consumer's indifference map to demonstrate an optimal trade-off between present consumption and saving during a two year period. What can cause this trade-off to change? Will a rise in interest rates cause consumers to save more?


5. Mrs. Melrose Ape buys apples and bananas at Lance Zardew's fruit and novelty store every Wednesday. Apples cost $2.50/kg and bananas cost $2.10/kg. The quantities of apples and bananas Mrs. Ape buys yields her a marginal utility of apples (MUA) equal to 10 and a marginal utility of bananas (MUB) equal to 9. Can Mrs. Ape do anything to improve her current situation? If she cannot, explain why not. If she can, explain what she must do and why this will improve her situation. 6. Demand for cigarettes in Canada is highly price inelastic. Yet when a heavy tax is placed on its sale, government revenues are disappointedly low. How can we make sense of this anomaly? [Notes 11-16] 7. What advantage did Apple have over its competitors? How has it managed to lose it? What conclusions, if any, can you draw from this case. [Notes 10] 8. Distinguish between the income and substitution effects of a change in petrol prices. What other factors discussed in the article and from your own knowledge may lead to a shift in the demand curve for petrol? [Notes 74] WEEK 4 20/3

TUTORIAL 2

ALLOCATION OF STUDENTS INTO GROUPS FOR ASSIGNMENT RISK AND UNCERTAINTY; ALTRUISM

THE THEORY OF THE FIRM

Reading : Frank – Chapter 5, 6 ,9; Notes 5-9, 17-19, 58 Review Questions 1. What does it mean to say that a person is risk averse? Why are some people likely to be risk averse, while others are risk lovers? Why is it intuitively plausible to assume that most people are risk averse? 2. What does it mean for consumers to maximize expected utility? 3. Why does it make sense to self-insure against minor losses. 4 What role does opportunity cost play in distinguishing between economic and accounting profits? 5 "If marginal productivity did not eventually diminish then the world's entire food supply could be grown in a flower pot." Explain. Discussion Questions 1. Farmer Zaphro Slornitz of the planet Globular has to decide whether to fertilise her field before she plants this year's crop of hooded blarnroot. The decision is a difficult one, because her profit depends not only on her decision with respect to fertiliser (which she can control) but also on whether or not her farm receives sufficient solar radiation. Her profit in each of the four possible cases is given below: Do not fertilise Fertilise


Solar Radiation $16 $25 No Radiation $ 9 $ 0 Suppose the probability of rain is 1/2. Will Jane fertilise her field if her utility function is U(Π ) = Π½ ? If it is U(Π ) = Π ? If it is U(Π ) = Π2 ? 2. The Dig M Down Mining company operating outside of Ballarat in 19th century Australia mines $10,000 worth of gold each week which it then ships to its main office in Melbourne. Stagecoaches leave Ballarat twice a week on Mondays and Thursdays. Bushrangers abound along the route and any given stage coach has a 50% chance of being robbed. Phlem Plunger, general manager and sole owner of Dig M Down must decide whether to send the whole amount once a week or split it into two lots of $5000. Phlem's utility function is U = M½ , where M is her weekly income. Phlem can't see any difference between the two options. Is she correct? 3. There are two groups, each with a utility function given by U(M) = M½, Where M =$144 is the initial wealth level for every individual. Each member of group 1 faces a loss of $44 with a probability of 0.5 due to the nature of his or her investments. Each member of group 2 faces the same loss of wealth but with only a probability of 0.1 due to the more conservative nature of each individual's portfolio. What is the most a member of each group would be willing to pay to insure against this potential loss? 4. What factors may explain the fact that the business sector in Australia gives much less to charity than the business sectors in comparable OECD countries? [Notes 9 ] 5. Given the information below, fill out the rest of the chart for a firm in a competitive industry. UVI TP AP MP TFC TVC TC AFC AVC ATC MC

2 8 18.75 25.0 3 14 5.0 4 15 5 5.0 6 60 7 9

UVI = Units of variable inputs, which all have the same per unit cost TP = Total Product AP = Average Product MP = Marginal Product TFC = Total Fixed Costs TVC = Total Variable Costs TC = Total Costs AFC = Average Fixed Costs AVC = Average Variable Costs ATC = Average Total Costs MC = Marginal Costs

a. As output increases explain what happens to the difference between AVC and ATC. b. What is the relationship between the minimum values of AVC, ATC and the value of marginal cost? Why does the minimum value of AVC occur before that of ATC?

6. Is the behaviour of most people (especially at Christmas) rational, in the sense used by economists ? [Notes 5-8, 58] 7 Sketch the short run cost curves for the following cases and explain why you have drawn the curves as you have.

a. The production of haircuts


b. The transport of airline passengers (Does the cost structure of airlines suggest anything about the basic pricing policies of airlines? See if you can illustrate this with examples.) [Notes 20]

For the following multiple choice question explain both why you chose your answer and why the alternative answers were less correct. 8 If a firm's marginal costs are constant

a. its average total cost curve is horizontal. b. its marginal fixed costs are decreasing. c. its average variable costs decrease as output increases. d. its total costs must increase at a decreasing rate. e. its total costs must increase at a constant rate.

WEEK 5 27/3

TUTORIAL 3

THEORY OF THE FIRM (Cont.) Review Questions 1. Locate areas on an isoquant map where production would not be rational. What is the sign of the marginal rate of technical substitution at these points? 2. Assume Woofie Bars are made using two inputs. If the price of both inputs fell by half, how would this effect the optimal input combination which should go into producing Woofie Bars? Would it make any difference if the price of only one input fell by half? 3. What are the goals of a firm regarding costs? What relation does the marginal rate of technical substitution between inputs have to do with obtaining these goals? Discussion Questions 1. Scum Daddies are a dessert sensation requiring inputs of labour and mud for their production. Zartz Bardew's current output level indicates that MPPL (Marginal Physical Product of Labour) = 11 and MPPM (Marginal Physical Product of Mud) = 9 with a unit of labour costing $14 and a unit of mud costing $11. Is Zartz employing a cost minimising combination of inputs? If not, what should she do? 2. "If the marginal rate of technical substitution between capital and labour is positive, firms must be producing in an inefficient manner." Comment. 3. Glymp Conrax produces thigpins 10 kilometres outside of Wagga Wagga. The production function for this product is X = 100KL where X = output, K = capital inputs and L = labour inputs. The rental price of capital is $120 per day. Under a special government initiative labour is only $30


a day. What is the minimum cost for Glymp to produce 1000 thigpins a day? Should Glymp produce this number? 4. The table below represents a production function for a firm that employs two inputs, Capital K and Labour L, to produce boxes of Iced Vo Vos (X). Assume that X = 0 for K = 0 or L = 0. Assume that the wage rate of labour is $10 per unit while the rental per unit of capital is $15. Sketch the LRTC, LRAC, and LRMC curves on the basis of the corresponding short-run curves for K = 1,2,3,4.

L\K 1 2 3 4 1 100 141 173 200 2 141 200 245 282 3 173 245 300 346 4 200 282 346 400

WEEK 6 3/4

TUTORIAL 4

PERFECT COMPETITION/ GENERAL EQUILIBRIUM AND WELFARE Reading : Frank - Chapters 11; 16 Reading: Notes 21 Review Questions 1. Is it possible for a firm to set its output level such that the marginal cost of producing its last unit of output equals the marginal revenue derived by selling that unit without the firm maximising its profit? Explain. 2. The supply curve for a perfectly competitive industry in the short run is the sum of the short-run marginal cost curves of the firms. Why is the industry supply curve in the long run not the summation of long-run marginal cost curve? 3. Use the Edgeworth box diagram to explain why both consumers' marginal rates of substitution are equal at every point on the contract curve. 4. "Since all points on a contract curve are efficient, they are all equally desirable from a social point of view." Do you agree with this statement? Explain 5. What is the marginal rate of transformation (MRT)? Explain why the MRT of one good for another is equal to the ratio of the marginal costs of producing the two goods. 6. What is the condition for efficiency in production? Explain with an Edgeworth box diagram. Explain the conditions for efficiency in both production and exchange with the aid of an Edgeworth box and production possibility curve with the aid of diagrams. Discussion Questions 1. "If the goal of a firm is to maximise profits then it should produce until its level of output corresponds to the minimum point of an average total cost curve. At this point the gap between the sale price and the cost of production is greatest. Therefore it must be here that profit is also largest." Please comment.


2. Assume that the pasta growing industry is a perfectly competitive industry consisting of 100 identical farms. The industry's demand and supply curves are given by

Qd (tons) = 2000 – 10P Qs (tons) = 1/9 (10P – 300)

a. Determine the equilibrium price and output for the industry. b. Determine the marginal cost curve for an individual farm. c. How many tons of pasta does each farm produce? 3. The maker of Wonder Uplift Underwear operates in a competitive, price-taking market. Production costs are given by C = 100 + X2, where X is the level of output and C represents total production costs. (The marginal cost of production is 2X. Are marginal costs constant?) Underwear prices are $60. How many underwear units should be produced to maximise profit? What would that profit be? What minimum price is necessary for the firm to produce output? 4. Why in the long run are no economic profits realised? Demonstrate this graphically. For the following multiple choice question explain both why you chose your answer and why the alternative answers were “less correct”. 5. Under perfect competition a firm must

a. decide how much to produce and what price to charge for its output. b. minimise costs. c. lower or raise its price in order to increase its revenue. d. know what rival firms are charging for their output. e. a & d only.

6. Ixnay Cramswash has 8 rolls of toilet paper and 2 violet crumble bars. Murkle T. Quinex has 2 rolls of toilet paper and 4 violet crumble bars. With these endowments, Ixnay's marginal rate of substitution (MRS) of rolls of toilet paper for violet crumble bars is three to one while Murkle's is equal to one to one. Draw an Edgeworth box diagram to show whether this allocation of resources is efficient. If it is, explain why. If it is not, what exchanges will make both parties better off? 7. Define Pareto efficiency. Using the conditions set out in Question 6 of the Review Questions, to derive the first fundamental theorem. How useful is Pareto efficiency in determining the "best" production point? How can we determine a social optimum? 8 Outline the main virtues and criticisms of general equilibrium analysis. [Notes 21] WEEK 7 10/4

FIRST SESSION EXAMINATION TUESDAY 11 APRIL NO TUTORIALS THIS WEEK

SESSION BREAK 14 – 23 APRIL WEEK 8 24/4


TUTORIAL 5

PROGRESS REPORT ON ASSIGNMENT

Students with tutorials on Tuesday 26 April (Anzac Day) should make alternate arrangements.

WEEK 9 1/5

TUTORIAL 6

MONOPOLY

Reading: Frank - Chapter 12; Notes 22-28, 59, 60 As it is assumed that the basic elements of pricing and output for single price monopolists are recalled from Microeconomics 1. Students are advised to revise this, especially pp. 408-427 in the text. Review Questions 1. Firm X has a complete monopoly over the production of squash rackets. The following information is given: Marginal revenue = 1000 - 20X Total revenue = 1000X - 10X2 Marginal cost = 100 + 10X X equals the output of squash rackets per unit time. How many squash rackets would be sold and at what price if: a) the firm sets price as a monopoly? b) the industry (firm) acts as a perfect competitor? 2. Why does a monopolist's marginal revenue curve lie beneath its demand curve? 3. Explain the concept of deadweight loss. Why does this indicate economic inefficiency? Discussion Questions 1. (Revision questions) What factors explain how monopolies arise? Outline the pricing ad output decisions of a single price monopolist in the short and long run. "A monopoly firm does not have a supply curve." Is this correct? Please explain. 2. Max the midget monopolist owns two plants that produce hamster pellets. The marginal cost functions of the plants are MC1 = 20 + 2X1 MC2 = 10 + 5X2 MC1

1

is the marginal cost of producing pellets at plant one while X1 is the total pellets produced at

plant one. MC2 is the marginal cost of producing pellets at plant two while X2 is the total pellets


produced at plant two. If Mighty Max is minimising costs by producing 5 cases of pellets at plant number one, how many cases is it producing at plant number two? 3.

This is an advertisement for wine from Theo's Liquor Markets. Using the appropriate model of price discrimination, explain why it is profitable for Theo's to price in this manner. 4. Why might landlords in Washington offer different rents for newer tenants? [Notes 23 5. Airlines charge different fares depending both on the type of customer and the type of trip. Explain why it is profitable for them to do so. [Notes 22] 6. Explain how medical practitioners, book sellers and software companies can practice price discrimination. [Notes 59, 60] 7. Explain why the types of price discrimination practised by “easy”corp. will lead to increased profits. [Notes 28] 8 Use the example of buses to consider whether privatisation of monopolies is always welfare improving. [Notes 24] 9. “Society SHOULD tolerate private unregulated monopolies rather than attempt to regulate them.” What arguments are behind this statement? Do you agree? [Notes 25-27] 10. Suppose that you are hired as a consultant to a firm producing computer chips. This firm is a monopolist which sells chips to computer manufacturers in Guam and Samoa. The demand curve for the firm's output in Guam is P1 = 160 - 8X1 , where P1 is the price of the product and X1 is the quantity sold in Guam. The demand curve for the firm's output in the second market is P2 = 80 - 2X2 where P2 is the price of the chips sold in Samoa and X2 is the quantity. The Firm's marginal cost curve is 5 + X, where X is the total output of the firm. The firm asks you to suggest what its pricing policy should be.

a) How many units should the firm sell in each market?


b) What conditions must prevail for your advice to be correct? WEEK 10 8/5

TUTORIAL 7

MONOPOLISTIC COMPETITION Reading: Frank - Chapters 13; Notes 29-32, 43, 51, 52, 68 Review questions

1. Explain in detail why you believe that each of the following industries can or cannot be represented by the theory of monopolistic competition:

a) coal b) lightbulbs (globes) c) airlines d) service stations 2. Are firms within monopolistic competition inefficient because they do not produce at the lowest point of their long-run average cost curves? Discussion questions 1 Explain the following phenomena, using Hotelling’s model. [Notes 30] a) The two main political parties have been called “tweedledum and tweedledee” by analysts

who argue that they are becoming increasingly alike. b) Similarly, there are arguments that the Sydney Morning Herald and the Australian

newspapers are becoming increasingly similar. c) It is not uncommon for there to be three service stations within 100 metres of each other. d) There is a tendency for restaurants to cluster in an area, and even for restaurants of

specific types to do so. 2. Explain why advertising, through its impact on brand name recognition, is profitable in the long run, or are waters just waters? [Notes 31, 32] What are the implications of advertising for a firm’s investment in its brand name? [Notes 68] Describe in detail the social advantages and disadvantages of advertising. If a particular advertising campaign is profitable to the advertisers, does this mean that it is socially desirable? Why or why not? 3. “The internet will eliminate price differentials caused by locations. Since it is easy to search for price information, price differentials will be eliminated”. Discuss. [Notes 51,52] 4. Should there be a ceiling on rents for residential accommodation? [Notes 43] WEEK 11 15/5

TUTORIAL 8

OLIGOPOLY Formal report presentation by groups


Reading Frank Chapter 13 Notes 29, 32-39a, 61, 65-67, 72,73 Review questions 1. What are the main characteristics of an oligopolistic market? What are the main characteristics of monopolistically competitive markets and how do they differ from oligopolistic markets? Outline the main ways of differentiating between different market structures. 2. Explain the different assumptions about inter firm reactions made by the different models of duopoly. Evaluate the usefulness of these models in providing understanding of actual oligopolies. Discussion Questions 1. Using the examples of the banking sector and of broadband service providers, explain why firms in an oligopolistic industry may follow a price leader? [Notes 33, 61 and pp. 88-90] 2 . What is a cartel? Why are cartels inherently unstable? What factors may make them stable? Use the examples of OPEC, CIPEC (copper cartel), De Beers and lawyers to support your argument. [Notes 29, 34-39, 65-67, 72,73] How can consumers influence the long run profitability of cartels? 3. Why is the entry of the mafia into an industry likely to lead to a cartel? How may this benefit the existing firms? [Notes 39a] WEEK 12 22/5

TUTORIAL 9

OLIGOPOLY AND STRATEGIC BEHAVIOUR Formal report presentation by groups

Reading: Frank Chapter 13 Notes 40-42 Review Questions 1. What is the difference between a cooperative and a noncooperative game? Give an example of each.] 2. What is a dominant strategy? Why is an equilibrium stable if at least one firm has a dominant strategy dominant strategies? 3. Explain the meaning of a Nash equilibrium. How does it differ from an equilibrium in dominant strategies? 4. What is meant by "first-mover advantage"? Give an example of a gaming situation with a first-mover advantage. 5. What is strategic behaviour? Why are firms more likely to engage in strategic behaviour when there are only a few of them in the market? What industries in Australia do you think engage in strategic behaviour? Discussion Questions


1. Problem 6 pages 492 in Frank. [Non US students need to know that a withdrawal is preferred to a C grade]. Under what circumstances may this result change.[Notes 58] 2. Frequent flier programs have represented a new form of competition for airlines. However, despite soaring costs, they have forced themselves into a prisoners dilemma, where it is almost impossible for any one airline to solve this problem by itself. How can the analysis of strategic behaviour shed light on these problems? [Notes 42] 3. Two firms are in the chocolate market. Each can choose to go for the high end of the market (high quality) or the low end (low quality). Resulting profits are given by the following payoff matrix: Firm 2 Low High Firm Low -20, -30 900,600 High 100,800 50,60

a. What outcomes, if any, are Nash equilibria? b. If the manager of each firm is conservative and each follows a maximin strategy, what will be the outcome? c. What is the cooperative outcome? d. Which firm benefits most from the cooperative outcome? How much would that firm need to offer the other to persuade it to collude?

4. The Bobslinger company suspects that Kinski Ltd. may attempt to enter their market. What steps might they take to dissuade Kinski from doing so? What factors are likely to determine whether they will succeed? What actions that they have taken (or not taken) in the past may play an important role in influencing whether or not Kinski tries to enter? 5. Explain the strategic decision of Coles Myer and Woolworths, and try to formulate them into a game. [Notes 69] WEEK 13 29/5,

TUTORIAL 10 LABOUR MARKETS

Reading: Frank Chapter 14 Notes 43-48, 70, 75

Review questions 1. "The demand for most resources, or factors of production, is a derived demand." Explain and give examples. In general, what relationship is likely to exist between the demand for a resource and the demand for products that can be produced by the resource? 2. Explain the following concepts:

a) the marginal revenue product of a factor b) the value of the marginal product of a factor

Under what circumstances does VMP = MRP? 3. Explain the following concepts:

a) the marginal cost of a factor b) the average cost of a factor Under what conditions does MFC = AFC?


4. Explain and illustrate the optimal level of employment of a variable factor by a perfectly competitive firm. What factors may cause the firm's demand curve for a resource to shift upwards? What would be the impact of such an upward shift on the firm's level of employment of the resource, other factors remaining equal? Discussion questions 1. How would you explain the different labour market performances of men and women? [Notes 44-48] 2. Under what circumstances may minimum wage legislation increase employment. What is the relationship between wages and labour supply? [Notes 43, 70] 3. What is meant by discrimination? Distinguish between pre-market and market discrimination. What sort of discrimination occurs in Australian labour markets? What types of policies may help alleviate this discrimination? [Notes 48] 4. How might a change in the nominal wage rate effect a person's labour supply? Would your answers differ if you focused on males as against females, and professionals against manual labourers? What would be the effect of an income tax cut on a person's labour supply? [Noes 75] 5. Does the “labour market” behave just like any other commodity market? [Notes 43a-45] WEEK 14 5/6,

TUTORIAL 11 ASYMMETRIC INFORMATION

Reading: Frank Chapter 6 Notes 19,49-57, 63

Review questions 1. In a deregulated market, what are the problems with buying a second hand car? How can the short comings of the market be overcome? 2. Explain what is meant by, and give examples of asymmetric information, moral hazard and adverse selection. In markets where these arise, can insurance overcome the information problems? Discussion questions 1. Assume (purely for the sake of argument!) that university degrees do not add to the skill or knowledge of students. Do they then serve any function? [Notes 19, 57, 62 pp. 184-185] 2.. Using concepts discussed in this course, explain why the market for private health insurance in Australia is experiencing significant problems? What suggestions do you have for overcoming these problems?[Notes 53, 54, 63 3. The UNSW student's union is thinking of setting up an insurance company. It has asked you to advise about the feasibility of introducing insurance to cover students' performance. In particular, you are being asked to evaluate a scheme which will insure students in case they do not get the grade they expect to get. Students will pay premiums dependant on their expected grade, and will


be recompensed if they do not achieve the grade they are insured for. What are your recommendations about the problems and feasibility of this scheme? 4. What are the implications of imperfect information for the art market? If two paintings are so similar that it is almost impossible to distinguish them, so that they are almost perfect substitutes, how can there be huge price differentials? [Notes 55] 5. It was thought that the internet would replicate the conditions of perfect competition, so that most transportable goods and services would be transacted in markets approaching perfect competition. Why have information problems prevented this? [Notes 51, 52] 6. Examine all the instances of informational asymmetries in the case of the Allied Irish Bank and Mr. John Rusnik. [Notes 56]

☺ The End!

MICROECONOMICS 2 SESSION 1 2006 ASSIGNMENT COVER SHEET

RESEARCH REPORT ON THE NATURE OF COMPETITION IN FIRMS

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