MICROECONOMICS FOR BUSINESS B1 (P11115) Spring Semester 2010/2011 MODULE OUTLINE ______________________________________________________________________ Module Convenor: Qing-Ping Ma Office: AB377

Email: qing-ping.ma@nottingham.edu.cn Office Hours: Monday and Thursday 14:00-15:00

Other Teaching Staff: David Chiang Office: AB370 Email: david.chiang@nottingham.edu.cn Office Hours: Tuesday and Wednesday 11:00-12:00 Credits & Level: 10 credits, level 1

Method of delivery & 10 lectures, one (50 minutes) per week Frequency of Class 2 seminars (50 minutes each), one in weeks between 21st March and 3rd April, One in weeks between 11th April and 24th April Method & Criteria of Assessment: Module Aims: Learning Objectives & Outcomes: 2 hour exam (100%) To develop an understanding of important economic concepts. Knowledge and understanding This module develops a knowledge and understanding of the development and operation of markets for resources, goods and services; the microeconomics of decision and choice; economic welfare. Understanding extends to economic policy, analytical methods and model-based argument. Ability to apply core economic theory and economic reasoning to applied topics. Intellectual skills This module develops the cognitive skills of critical thinking, analysis and synthesis, including the ability to identify assumptions, evaluate statements in terms of evidence, to detect false logic or reasoning, to identify implicit values, and to define terms adequately and to generalise appropriately. 1

Professional practical skills This module develops the ability to apply economic models to economic problems and phenomena. Transferable (key) skills This module develops effective self-management in terms of time, planning and behaviour, motivation, self-starting, individual initiative and enterprise. Introduction The aim of this module is to extend participants knowledge of microeconomic theory. This module develops a knowledge and understanding of: the microeconomics of consumer choice; choice under risk and uncertainty; the development and operation of markets for resources; the microeconomics of market failure; and exchange & trade. Class Contact The module consists of 10 lectures, 1 per week, and 2 seminars. The lectures will provide you with the core material for the module whilst the seminars provide an opportunity to apply some of the issues. Attendance at lectures and seminars is compulsory. The two seminars are in the weeks between 21 st March and 3rd April, and between 11th April and 24th April, respectively (Timetable Weeks 31-32 and 33-34 respectively). You should only attend the group for which you are listed. However, in exceptional circumstances (e.g. illness), you may attend any group subject to space being available. Each student is expected to attend, prepare work for and participate in both seminars. Details of the work for the tutorials will be advertised later and published on Nexus. Assessment Assessment will be by a two hour examination at the end of Semester 2 (100%). The examination will be split in to two Sections. Section A will offer five short questions (50%). All questions must be answered. Section B will offer 4 essay questions (50%). You must answer one question. The questions will cover both lecture and tutorial material. Access to Teaching Material

Copies of this document and all other handouts and additional reading are available on Nexus. It is recommended that you monitor Nexus regularly for any announcements and up-to-date information. N.B. If you would like a hard copy of this or subsequent documents in an alternative format, or have other concerns around issues of access/disability please contact the Module Convenor. Module Content There are six core topics covered. These are: Exchange & Trade, Consumer Theory, Choice Theory, Factor Markets, Asymmetric Information and Externalities & Public Goods. More than one lecture may be spent on some topics. Details will follow. It is essential that the material provided in the lectures be supplemented by the recommended reading. Reading List No single text covers all the topics. Teaching material will be drawn from an array of texts. You will be advised as to the specific readings as the course progresses. The following texts may be referred to from time to time (in no specific order): Books on Microeconomics in general: Pindyck, R.S. and Rubinfeld, D.L. (2009). Microeconomics (7th Ed.), Prentice-Hall. Morgan, W., Katz, M.L. and Rosen, H.S. (2006). Microeconomics (European Ed.), McGraw-Hill. [Or Katz, M.L. and Rosen, H.S. (1995). Microeconomics (3rd Ed.), McGraw-Hill.] Parkin, M. (2008). Economics (8th Ed.), Pearson. Mankiw N.G. (2007). Principles of Microeconomics. Thomson (4th edn.) Mankiw N.G. and Taylor, M.P. (2006) Microeconomics. Thomson Begg, D., S. Fischer, and R. Dornbusch (2005), Economics (8th Ed.), McGraw-Hill Bernheim, D.B. and Whinston, M.D. (2008). Microeconomics. McGrawHill. Stone, G. (2008) Core Microeconomics. Worth Publishers Books for specific topics: Milgrom, P. and Roberts, J. (1992). Economics, organization and 3 MR PR MKR

P M MT BFD BW S

management. Prentice-Hall. Molho, I. (1997). The Economics of Information: Lying and Cheating in Markets and Organizations. Blackwell, Oxford. Lazear, E. and Gibbs, M. (2009). Personnel Economics in Practice (2nd edtn). John Wiley & Sons. Plous, S. (1993). The Psychology of Judgement and Decision Making. McGraw-Hill Mansfield et al. (2005). Managerial economics: theory, applications, and cases. W.W. Norton Douma, S. and Schreuder, H. (2002). Economic Approaches to Organizations. Prentice Hall Hardman, D. (2009). Judgment and Decision Making. BPS Blackwell Mo LG Pl Ma DS H

Note: Earlier and more recent versions of some books may be available in the library and can be consulted as well. Additional reading may be outlined in each lecture. You may find books, other than those listed, useful also. You must ensure, however, that the contents of the books you use are at the appropriate level for the course. Additional guidance will be given in lectures. Lecture Outline The following is a guide to the order in which the material will be covered. Please note that the scheduling is tentative and it may be necessary to cover the topics in different weeks. Topic One (Weeks 1-2). Introduction and Exchange & Trade

Introduction to this module Gains from Trade Absolute and Comparative Advantage The Winners and Losers from Trade The Effects of a Tariff and an Import Quota

Reading: M Chapters. 3 & 9; P Chapter 32; BFD Ch. 33 Topic Two (weeks 3-4). Consumer Theory Indifference Curves Budget Constraint and Optimal Consumption Income and Substitution Effects 4

Different types of goods

Reading: M Chapter 21-pp455-471; PR Chapter 3-pp67-89 and Chapter 4-pp111-123; MKR Chapter 2-pp23-47, Chapter 3-pp 59-63 & 67-70. Topic Three (week 5) Choice Theory Choice under risk and uncertainty Violation of EUT Behavioural study of consumer choice

Reading: PR Chapter 5-pp159-170, 181, 185-189; H Chapter 7-pp64-72. Topic Four (week 6) Factor Markets Supply for Labour Demand for Labour Labour Market Equilibrium Other factor markets

Reading: MKR Chapter 5-pp135-143;; BFD Chapter 10-pp136-146; P Chapter 17pp385-399. Topic Five (weeks 7-8) Asymmetric Information

Information Asymmetry Adverse Selection and Moral Hazard Principal-Agent problem

Reading: M Chapter 22-pp484-490; PR Chapter 17-pp617-627; Ma Chapter 17pp671-676; Mo Chapters 1 and 9; BW Chapter 2-section 21.1; LG Chapter 2-pp25-40; MR Chapter 5-pp154-159 Topic Six (week 9-10) Externalities and Public Goods

Externalities and efficiency Public Goods and Common Resources Market Failure and its correction

Reading: M Chapters.10 and 11; MKR Chapter 18-pp655-681; PR Chapter 18pp641-671; P Chapter 15-pp343-355 and Chapter 16-pp363-375; S Chapter 13-pp339-362 Most Recent Exam Paper: The module Microeconomics for Business B1 is offered as a level 1 module from this semester, so there is no previous exam paper. The following is the most recent exam paper of the similar module Microeconomics for Business B, which is offered as a level 2 module. 5

The University of Nottingham Ningbo, China

BUSINESS SCHOOL A LEVEL 2 MODULE, AUTUMN SEMESTER 2010-2011 MICROECONOMICS FOR BUSINESS B Time allowed TWO hours Answer ALL Questions from Section A Answer ONE Question from Section B Each Section carries 50% of the overall mark SECTION A Answer ALL Questions 1. Explain the principle of comparative advantage and see if you can identify the comparative advantage in production where two people can produce two goods (in units) as follow: Person A Person B Takes 1 hour to produce (in units): Cheese 5 10 Chocolate 2 8 Why does the marginal rate of substitution diminish along an indifference curve? Consider a labour market in equilibrium. Using a diagram explain what would happen in the labour market if wages in another sector were to rise. Explain adverse selection through an example. Identify the Nash solution to the following public good game where two players (A and B) can choose to contribute either $0 or $10 to the public good and briefly explain why we get the resulting contribution levels.

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SECTION B Answer One Question

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Using indifference analysis, explain why for an inferior good more is consumed when the price falls but less is consumed when current income rises. In what ways have people been observed to violate expected utility theory and why? Outline the principal-agent problem specific to the relationship between shareholders and managers. Can market constraints mitigate the problem? Critically examine the Coase bargaining solution as a means to resolve the inefficiency created by pollution.

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