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Modern Microeconomics

Objectives

To acquaint the students with the mechanisms of economic development and the decision processes of producers and consumers. To acquaint the listeners with problems of analysis of market economy mechanisms, with emphasis put on the role of innovations (technical and organizational) in the economic process. The presented material will enable the students to understand better the evolutionary mechanisms of industrial development, market mechanisms in capital economy, the role of R&D process and the role of innovations in economic development.

 Lectures

  1. Basic definitions and the subject of economy; “economics in one lesson”.
  2. Tools for economic analysis (data, indices, real and nominal values, models, computer simulation, static and dynamic analysis).
  3. Diversity and development. Inequality of income. Gini coefficient.
  4. Basic categories of capitalism (wealth and service, market, money, price, demand, supply, etc.). Supply and demand models (cobweb model, simulation models).
  5. The neoclassical theory of the firm (basic assumptions – representative firm, profit maximization, etc. – separation of company ownership and management). Alternative theories of the firm (criticism of the neo-classical approach; uncertain information, the role of non-verbalized knowledge, limited rationality; comparing neo-classical and evolutional company models).
  6. Basic market structures and their analysis (perfect competition, monopolistic competition, oligopoly, duopoly, monopoly, monopsony).
  7. Production factors (labour, capital, knowledge) and their analysis.
  8. Evolutionary models of industrial development, price and investment decisions (construction of models via analogy; routines-as-gene analogy; company decisions in the evolutionary model; results of simulations and the comparison with the neo-classical model, diversity versus the rate of development).
  9. Entrepreneur, entrepreneurship and the analysis of economic process from the Austrian School viewpoint.
  10. Summary – economics in a nutshell.

 General reference books:

  • Skousen Mark, 2013, Economic logic, Fourth Edition, Washington, DC: Capital Press (sample pages)
  • Begg D., Fischer S., Dornbusch R. (2000), Economics vol. 1 Microeconomics, The McGraw-Hill Companies.
  • Mankiw N. Gregory, Mark P. Taylor (2006), Economics, Thomson Learning.
  • Varian H. R. (1996), Microeconomics, .
  • Henry Hazlitt, Economics in One Lesson. Links: 1, 2, 3

Why not Samuelson’ textbook? 

In the 1989 edition of the textbook, Samuelson and William Nordhaus wrote

“the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.” (!)

See also: Paul Samuelson’s repeated predictions of the Soviet Union economy catching up with the US

Secondary sources:

  • Freeman Chris, Luc Soete (1997), The Economics of Industrial Innovation, London: Pinter.
  • Friedman Milron i Rose (1996), Free to choose.
  • Kwasnicki Witold (1996), Knowledge, Innovation, and Economy. An Evolutionary Exploration, Edward Elgar Publishing Ltd.

Examination problems

  1. What is economics? (Textbook definitions and opinions of different authors (e.g. Mises, Skausen, Robbins, Viener).
  2. Is economics a science?
  3. Economics (Oeconomy) vs. ‘political economy’ – differences, and origin of the terms.
  4. The magic year 1776?
  5. Economics as a profession (who was the first professor of political economy)?
  6. Economics in One Lesson (Henry Hazlitt and Frederic Bastiat).
  7. William Graham Sumner and his Forgotten Man.
  8. Positive vs. normative economics.
  9. Difficulties of economic analysis.
  10. Model and reality. Why do we construct models?
  11. The opinion of Alfred Marshall on using mathematics in economic analysis.
  12. Interpolation, extrapolation and trends in economic analysis.
  13. Definition of an index. What is price consumer index?
  14. Nominal and real values – differences.
  15. Nicolas Kaldor and his idea of ‘stylised facts’.
  16. The most popular sub-criteriaa of models’ evaluation.
  17. Analytical models vs. simulation models – advantages and disadvantages.
  18. Convergence in economic development of nations.
  19. Lorenz curve and Gini index.
  20. Diversity of income and welfare development – general idea and examples of nations.
  21. What is capitalism?
  22. Economic (scare) good – definition and opinion of Carl Menger.
  23. How are prices set? Opinion of Pierre de Jean Olivi. What is a just price?
  24. Private Vices, Public Benefits, supreme hand and invisible hand – general idea on the role of egoistic behaviour in economic development.
  25. Price system and three functions of prices .
  26. Production possibility frontier and why possibility production frontier is convex (bowed outward)?
  27. Marginal utility, marginal cost, and marginal revenue – the definitions.
  28. Opportunity cost – general view.
  29. Market – a definition, efficiency of market (in a context of Pareto principle).
  30. What are the main features of a market?
  31. Demand and supply, demand function, supply function – understanding and definitions.
  32. Individual demand curves and construction of a market demand curve.
  33. Equilibrium price. The Pope and the price of fish? Problems with a concept of equilibrium price.
  34. Factors influencing the demand (multidimensional demand function).
  35. Price elasticity of demand. Elastic and inelastic goods (markets)
  36. Short and long terms development – a concept.
  37. Cross-price elasticity of demand. Substitute and complementary goods.
  38. Income elasticity of demand. Normal and interior foods.
  39. Cobweb models – damped oscillations, explosive oscillations, stable (constant) oscillations.
  40. Revenue (income), Costs, Profit, Normal profit (natural profit), Extraordinary profit – definitions.
  41. Equilibrium and profit maximization. Stable and unstable equilibrium.
  42. Production function – definition; the Cobb-Douglas production function.
  43. Long-run total costs, long-run marginal costs, and long-run average costs – definition and mutual relationship between long-run marginal costs and long-run average costs.
  44. Economies of scale and the MES.
  45. Firms’ optimal decision in a long run (graphical representation).
  46. Short-run production decisions of a firm (graphical representation).
  47. Is profit maximization the only criterion of firms’ decisions?
  48. Market structures – an outline.
  49. Evolutionary models – general features.

see Managerial Economics