Introduction to Economics : Micro and Macroeconomics

SYLLABUS
Sept. 2012 Jan. 2013

D3/PAAP School of Economics

Padjadjaran University
Bandung, West Java, Indonesia

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Course Description
This course provides the economics principles necessary for the administration of a businesses.
Microeconomics, being a rather theoretical knowledge,is essential as a foundation for more specific
and applicative business courses offered further on in the semesters. The Macroeconomics half of
the course supplies the knowledge to comprehend the influence of factors external to the firm,
specifically the economy. At the least business administrators must be aware of the implications of
economic events in the news and the impact of economic policies.
Assignments are lecture summaries and data collection on the Indonesian economy. Homework are
numerical problem sets and the sharpening of theoretical understanding.

Textbooks
Case, Fair & Foster, 2011, Principles of Economics, 11th ed., Pearson Prentice-Hall

[CF]

Mankiw, 2009, Principles of Economics, 5th ed., South-Western College Pub.

Samuelson and Nordhaus, 2009, Principles of Economics, 19th ed., McGraw-Hill/Irwin

Suggested Reading
Baye, 2009, Managerial Economics, 7th ed., McGraw-Hill/Irwin
McGuigan,Moyer & Harris, 2007, Managerial Economics, 11th ed., South-Western College Pub.

Grading
Homework + Quizzes + Class Participation (25%), Midterm Test (35%), Final Exam (40%)

Lesson Program
Class meetings areonce a week@ 150 minutes/meeting (minus a 5-10 minutes break)
Week 1 : Introduction to Economics

[ CF chapters 1, 2]

What is Economics ? Definition

Micro & Macroeconomics : Unit based vs. System wide phenomena

Positive and Normative Economics

Theory & Model
Laws in the Social Sciences/Economics & Assumptions (cet. par.)
Rationality & Marginalism
Why do we study Economics ? Illustrations

Week 2 : Microeconomics - Demand & Supply

The Market Mechanism : a democratic system ? What, How & For Whom
Demand : function of Price/P and Quantity/Q
The Logic underlying the Demand Function
Demand shift and rotation, individual and market
Elasticity : Own Price, Cross Price and Income
Elasticity &Total Revenue (TR); the effect of time

Week 3 : The Market System

[CF ch. 7, 8, 9]

Production process : function of factors/input & output (Quantity)

Short-run & Long-run production function
Function with one factor/input : TP = f (L); AP and MP
Function with two factors of production : Isoquant & Isocost
Production equlibrium (+ with constant Price of output, firm equilibrium)
BREAK
Production & Cost Duality
Cost in Economics : Opportunity Cost
TC = FC + VC, AC, MC; Sunk Cost, Incremental Cost
Short-run & Long-run Cost

Week 5 : Cost & Revenue

[CF ch. 3, 4, 5]

Supply : function, shift and rotation, individual and market

The Logic behind the Supply Function
Elasticity of Supply
BREAK
Market Equilibrium(Pe &Qe)
Market adjustment : fast and slow
Market Distortion and its consequences : Ceiling & Floor Price

Week 4 : Production& Cost

[CF ch. 3, 4, 5]

TR = P x Q; AR, MR
Profit & Loss (with constant Price/P)
Short-run & Long-run operation : Shut Down Point/SDP
Tracing the Supply Function
Break Even Point/BEP & Pay Back Period/PBP

[CF ch. 7, 8, 9]

Case Study : Micro Business (debt service/amortization burden)

Week 6 : Market Structure (1)

Perfect Competition Market/PCM : P = MC

Standard of Efficiency, Consumer & Producer Surplus
Macroeconomic effects

Week 7 : Market Structure (2)

[CF ch. 12]

[CF ch. 13, 14, 15]

Monopoly : MR = MC
Case Study : Dead Weight Loss/DWL
Rent Seeking Behavior & Macroeconomic effects
Oligopoly, MCM, Contestable Market : other market structures

Midterm Test

Week 8 : Macroeconomics The Keynesian Revolution

Income (Y) Determination : measurement of economic activity & welfare

Brief background on Macroeconomics : History, Great Depression (1920s-1930s)
A Keynesian model : The Circular Flow of Income
GDP & GNP
AD & AS : closed & open economy
Macroeconomic performance : income per capita (YPC), income distribution, economic
stability and growth

Week 9 : The Real Sector Employment & Investment

[CF ch. 22]

Jobs & Unemployment : Income disparity, Jobs& Prosperity

Types of Unemployment
Measurement of Unemployment
Costs of Unemployment, Okuns Law
BREAK
Capital (K), Investment (I) and Saving (S) : Capitalism
Personal/Household S, Corporate S & Government S
I = K formation, expansion of K stock; Gross and Net I (GDP/GNP & NDP/NNP)
Preview of the Business Cycle : the volatility of I, I-demand (I-dd)
Capital Market (Loanable Funds Market) &Real Interest Rate

Week 10 : Monetary Economics : Money & Banking; Inflation

[CF ch. 1, 2, 20, 21]

Brief history of Money/M : forms & functions; the Barter System

[CF ch. 25, 26]

The Central Bank & the Banking System : the money multiplier
Control of the Money Supply (M-ss) : Reserve Ratio, Discount Rate, Open Market Operation
The Quantity Theory of Money : MV = PQ; Velocity of Money
BREAK
Inflation : Definition, Cost of Inflation (tax effect, income redistribution, shoe leather
cost/inefficiency, uncertainty hampers business)
Measurement of Inflation : The Price Index, the Cost of Living, Real (Yr) and Nominal Income
(Yn)
Hyperinflation & Rudimentary Monetary Policy : the Sacrifice Ratio

Week 11 : The Financial Sector; Economic Growth

The Supply of Money/M-ss and the Demand for Money/M-dd

Keynesian Motives for Holding Balances
Money Market and Nominal Interest Rate : Money/M & Bonds/B (Financial Assets)
BREAK

Economic Growth The Long-run View

[CF ch. 27, 28]

Modern Model : Aggregate Demand/AD & Aggregate Supply/AS

Fluctuations in AD & AS : the Price of aMarket Economic System ?
Macroeconomic short-run instability& Adjustment toward Full-employment Income

Week 14 :Open Economy Macroeconomics

[CF ch. 23, 24]

Aggregate Demand/AD : Y = C + I + G + NX
Keynesian Expenditure Multiplier
The Keynesian Cross
Inflationary & Deflationary Gap : the Rudiments of Fiscal Policy

Week 13 : Short-run Fluctuations (2) - The Business Cycle

[CF ch. 22, 32]

Production Possibility Frontier/PPF and the Opportunity Cost

Technological Progress : neutral or biased ?; Employment effects
Sources of Growth (aggregate production function) : techno growth as a function of efforts
World Convergence ?

Week 12 : Short-run Fluctuations(1) - TheKeynesian Model

[CF ch. 23, 25, 26 30]

International Trade : Export-Import & the Balance Of Payment

Exchange Rate Regimes; central bank intervention
Foreign Exchange Market& International Finance

Final Examination : Comprehensive, with emphasize on Macroeconomics

[CF ch. 34, 35]