Text
Book
N.
Gregory Mankiw
Principles of Economics
3rd Edition ©2004
ISBN: 0324168624
Duration
The economics module is composed of 36 lectures, which are delivered
over a six week term. Each week their will be 12 hours of
lecture and 6 hours tutorial. At the completion of the coursework,
students will have a two week study recess followed by the
final examination.
Syllabus
The Market Mechanism
The economic problem of scarcity and the need for choice.
Opportunity cost. Decision making at the margin. Specialization
and exchange. The allocation of resources in market and mixed
economies, including reference to market failure and government
response.
The
concept, operation and role of competitive goods markets.
Nature of individual and market demand and supply curves.
Determinants of demand and supply. The distinction between
movements along and shifts of both curves. Price, income and
cross-price elasticity of demand, and price elasticity of
supply. Consumer surplus and utility. Producer surplus.
The
interaction of demand and supply to determine market equilibrium,
price and output. The effects on market equilibrium of changes
in demand and supply. The effect of price elasticities of
demand and supply on the impact of shifts in market equilibrium.
Demand and supply links between markets for different commodities.
The
concept, operation and role of competitive factor markets.
Factors of production, their geographical and occupational
mobility, and their rewards. The demand for factors in particular
uses as a derived demand.
The
supply of factors to particular uses. The determination of
the return accruing to a factor in a particular use, and that
return’s division between transfer earnings and economic
rent.
Labour
markets and wage determination. The reasons for wage differentials,
including labour immobility, skill differentials, discrimination,
the market impact and changing role of trade unions and employers’
associations.
Production
and Competition
The
organization of production. The objectives and decisions of
firms. The finance and growth of firms. The scale of production:
internal economies and diseconomies of scale. External economies
and diseconomies. Factors influencing the location of economic
activity.
The
nature of production and factor productivity: the division
of labour, diminishing returns to the variable factor in the
short-run, returns to scale in the long-run. The firm’s
product and cost curves.
The
nature of competition: alternative market structures and the
firm’s resulting revenue curves.
The
conditions for determining profit-maximising price and output,
and the role of profit in resource allocation. The derivation
of the supply curve of the firm and of the industry under
conditions of perfect competition (in both the short and long
run).
The
role of entry barriers and the behaviour of firms in imperfectly
competitive markets. The equilibrium of firms operating under
conditions of monopoly and monopolistic competition (in both
the short and long-run). The variety of price-output outcomes
under conditions of oligopoly.
Comparisons
between long-run outcomes under different competitive conditions.
Market
Failure and Government Response
The
distinction between efficiency, both allocative and productive,
and equity motives for government microeconomic intervention.
The
competitive model and efficient (ie socially optimal) resource
allocation.
Divergences
from efficiency and the government response to correct these
market failures, including:
(i) the social cost of monopoly and government policy towards
monopolies, mergers, privatization and competition;
(ii) externalities, such as the cost of pollution/road congestion
and the benefits of merit goods such as health care and education;
government corrective measures;
(iii) public goods.
The
distribution of income and wealth among factors and individuals
and government re distributive intervention.
The
regional distribution of income and employment, and government
regional policy intervention.
Instruments
of government market intervention and their effects, including:
(i) indirect taxes and subsidies;
(ii) direct taxes and transfer payments;
(iii) market regulation, such as maximum and minimum price
legislation;
(iv) public provision of goods and services.
An
appreciation of how and why governments may fail to achieve
the socially optimal allocation of resources.
The Macroeconomic System
The measurement of economic activity. Definition and measurement
of national income/output. Major national income accounting
concepts: gross domestic product; gross national product;
net national product; personal disposable income.
Measurement
of the price level through price indices. The distinction
between nominal and real statistics.
The
usefulness and limitations of national income statistics including
the measurement of living standards and problems of comparison
over time and between regions and nations.
The
national income as a circular flow involving households, firms,
government and the foreign sector. Leakages and injections.
The
components of aggregate demand: Keynesian and Neo-classical
approaches to aggregate supply and aggregate demand. The determinants
of aggregate demand and aggregate supply. Movements along
and shifts of aggregate demand and supply curves. Macro-economic
equilibrium price level and real output.
The
functions of money. Credit-creation.
The
different money supply definitions, narrow and broad. The
determinants of the demand for money. Interest rate determination
in the money market.
The
quantity theory of money and prices and changes in the value
of money. i.e. Monetarists and Keynesian interpretations on
the Fisher “equation of exchange” identity, and
their respective implications for the role of money in the
economy.
The International Economy
Specialization
and the gains from trade. The theory of comparative advantage.
Free
trade and protection. The importance of multilateral trade
among large trading “blocs”. The role of WTO (World
Trade Organization).
Monetary
aspects of foreign trade. The trading accounts: current account
– visible balance, invisible balance, current balance;
transactions in external assets and liabilities; overall payments
balance (net of official transactions); the official reserves.
Balance of payments equilibrium and disequilibrium. Nominal
and trade-weighted exchange rates. Determination of the exchange
rate under both fixed and flexible exchange rate regimes.
The
European economy. The theory of customs unions and free trade
areas. The EU (European Union) including: the structure of
the Community and potential enlargement; the Single Market;
the Community Budget; the European Monetary System (EMS);
arguments for and against a Single European Currency.
The
world economy. The global distribution of resources, income
and wealth, among developed countries, newly-industrialised
countries (NICs) and less developed countries (LDCs). The
operation of world primary product markets. Different strategies
for economic development within LDCs. Help from the developed
world: the relative importance of trade and aid; the role
of the World Bank (International Bank for reconstruction and
Development) and the IMF (International Monetary Fund).
Macroeconomic
Problems and Policy
The
problems of stabilizing, at appropriate target levels, the
main macroeconomic variables, including those listed below.
(i)
Aggregate employment level: operation of the aggregate labour
market; measurement of the labour force, dependent population,
employment and unemployment; aggregate labour supply and demand
and the determination of the equilibrium real wage and employment
level. The main types of unemployment, their causes and effects.
Full employment and the natural rate of unemployment.
(ii)
Inflation rate: measurement of inflation; causes and effects
of inflation; anticipated
(iii) External trade and payments positions: causes and effects
of external imbalance; expenditure-changing and expenditure
switching effects.
(iv) Growth rate of real output: long-run trends in economic
activity; the nature, measurement, causes and effects of economic
growth.
Conflicts
between the main macroeconomic policy goals of full employment,
low inflation, external balance and steady economic growth.
The Phillips Curve policy trade-off between inflation and
unemployment. The role of expectations in shaping the extent
of this trade-off.
The
problem of achieving both internal and external balance. The
political business cycle. United Kingdom and regional macroeconomic
performance and comparisons with other national economies.
The
main macroeconomic policy instruments and their effects, including
those listed below.
(i) Fiscal policy: its role in demand management; its limitations.
(ii)
Monetary policy: the role of the central bank; Bank of England
control of the money supply, primarily through interest rate
manipulation; advantages and disadvantages of the removal
of political control over the setting of interest rates.
(iii)
Exchange rate policy: the different responses to balance of
payments disequilibrium under fixed and flexible exchange
rate regimes.
(iv)
Supply-side policies: including direct tax and benefit reforms,
privatization, deregulation, and labour market reforms.
Constraints
on government macroeconomic policy in the open economy; a
brief history of changes in monetary and fiscal policy over
recent years and the role of the international financial markets. |
