AL Microeconomics Course Outline

Topic 1 The scope of economic analysis

a. Economics and Scarcity Basic Knowledge - Basic problems - Basic Questions - Demand and supply curves - Law of diminishing returns AL Materials - Relationship among scarcity, competition and discrimination - Free goods and scarce goods (related to scarcity and shortage) - Production Possibility Curve: scarcity, opportunity cost and efficiency

b. Elementary Demand and Supply - Demand and supply and factors affecting - Elasticity of demand and supply and factors affecting

c. Methodology - Postulates and testing of hypotheses - Normative and positive statements - Economic theories

d. Utility, wealth, income and the postulate of maximization - Equilibrium - Maximization and equilibrium

AL Microeconomics Course Outline

Topic 2 The Law of demand and theorem of exchange

a. The inverse relationship between price and quantity demanded Basic Knowledge - Consumers behaviour - The law of demand - Demand and Quantity demanded - Elasticity of demand AL Materials - First law of demand - Second law of demand b. Equi-marginal Principle, Indifference curves and Money income constant demand curve Basic Knowledge - The law of demand - The demand curve - Money Income Vs Real Income AL Materials - Equilibrium - Equi-marginal Principle - The indifference curve and indifference map - Budget Line - Equilibrium and maximization of consumers - Changes in equilibrium: prices and income - Price consumption curve and income consumption curve - The derivation of demand curve - The derivation and properties of Engel curve c. Use value, exchange value and consumer surplus Basic Knowledge - Meanings of use value and exchange value - Measurement of use value and exchange value AL Materials - Consumer surplus: from basic to graphical approach - The Paradox of Value d. Market demand, exchange and Price as a criterion for resource allocation Basic Knowledge - The derivation of market demand from individual demand - Equilibrium and maximization AL Materials - Gains from exchange and the theorem of exchange - Price mechanism

AL Microeconomics Course Outline

Topic 3 Cost I (Short Run, Long Run & Supply)

a. The Law of Diminishing Marginal Productivity/Returns Basic Knowledge - Short Run - Fixed Factors and Variable Factors - Fixed Cost and Variable Cost - Long Run - Economies and Diseconomies of Scale AL Materials - The Diminishing Productivity - The Cost curves (TC, TVC, TFC, AC, AVC, AFC & MC) - The Productivity curves (TP, MP & AP) - Relationship between Productivity and Cost - The relationship amongst the different curves - Economies of Scale and Diseconomies of Scale and cost curves b. Cost curves and supply curves Basic Knowledge - The cost curves - Short run cost conditions - Long run cost conditions AL Materials - To derive the short run supply curve - To identify the shut down point - The meaning of Sunk/Historic Cost - The meanings of Implicit Cost & Explicit Cost - A brief introduction to Internal Cost, External Cost and Social Cost - A brief introduction to Transaction Cost c. The concepts of cost, rents and profits Basic Knowledge - The meaning of opportunity cost and its impact on economic behaviour - The meanings of rents and profits (in accounting sense) AL Materials - The meanings of economic rents and windfall profits - Economic rents as part of cost - Windfall profits and economic behaviour or resource allocation

AL Microeconomics Course Outline

Topic 4 Cost II (Market Structure: Price Takers and Price Searchers)

a. Market Structure Basic Knowledge - General characteristics of market - Usually criteria used to classify markets - Monopoly, Duopoly, Oligopoly, Monopolistic Competition and Perfect Competition - Different markets as one whole spectrum AL Materials - Imperfect Competition and Perfect Competition - Price Taker (Brief Introduction) - Price Searcher (Brief Introduction) b. Resource allocation under price taking Basic Knowledge - Perfect Competition - Price Taker AL Materials - Characteristics of Price Taker - Demand curve facing an individual firm and the whole market - The wealth-maximizing equilibrium of a price taker in both short run and long run - A price takers short run supply curve and short run industry supply curve - The allocative efficiency implications of the equilibrium of a price-taking industry c. Monopoly pricing (price searching); perfect and partial (third degree) price discrimination Basic Knowledge - Price Searcher - Reasons for monopoly AL Materials - The wealth-maximizing equilibrium of a price searcher and monopoly rent - The allocative efficiency implication of simple monopoly pricing - The conditions and to identify cases of price discrimination - The effects of price discrimination on output and allocative efficiency d. A simple description of oligopoly and monopolistic competition Basic Knowledge - Oligopoly and Monopolistic Competition - Their major characteristics AL Materials - The price rigidity and inter-dependence under oligopoly - The demand curve (AR) and MR of oligopoly - Product differentiation and non-price competition under monopolistic competition - The equilibrium of monopolistic competition

AL Microeconomics Course Outline

Topic 5 Economic Organizations

a. Firms as economic organizations Basic Knowledge - General information of firms - What a firm is from students point of view - Visible hand and Invisible hand AL Materials - Market coordination and Managerial coordination

b. Basic types of business organizations Private Enterprise - Sole Proprietorship - Partnership - Company Public Enterprise - Government departments - Public Corporations

c. The existence of a firm Reasons - Costs in using the price mechanism - Firm owners as Monitors (Alchian and Demsetz) - The contractual agreement (Coase) - The factor market and the product market - The transaction costs (Cheung)

d. Problems related to the firm The Monitor - The shirking problem - Residual income The Contractual Arrangements - Time Rate - Piece Rate - Tips or Gratuities - Outright sales or Purchase

e. A Communist economy a firm

AL Microeconomics Course Outline

Topic 6 Government Intervention

a. General Introduction - Reasons - Forms (Price Control, Quota and Taxes on Goods)

b. Price Control Basic Knowledge - Price Ceiling - Price Floor AL Materials - Effects of Price Ceiling (Price, Quantity and welfare changes) - Effects of Price Floor (Price, Quantity and welfare changes) - Rent Controls - Non-price allocation - Dissipation of rent and inefficiency under non-price allocation

c. Quota Basic Knowledge - Effects of Quota AL Materials - Welfare changes - Efficiency issues

d. Taxes Basic Knowledge - Direct tax - Indirect tax - Ad Valorem tax and Lump Sum tax - Tax incidence AL Materials - Effects of indirect tax - Effects of per unit tax (on Price takers and Price searchers) - Effects of Lump Sum tax (on Price takers and Price searchers)

AL Microeconomics Course Outline

Topic 7 The Factor Market The Labour Market

a. Income Distribution AL Materials - Functional Distribution - Size Distribution - Graphical presentation Lorenz Curve

b. The demand for factors Basic Knowledge - General Review of a demand curve especially the maximum willingness to pay - The derived demand AL Materials - The meanings of Marginal Revenue Product (MRP) and Value of Marginal Product (VMP) - The differences between MRP and VMP - The Average Revenue Product (ARP) curve - The relationship between MRP/VMP and ARP - To derive the relevant demand curve of a firm under a competitive factor market

c. The supply of factors Basic Knowledge - General Review of a supply curve especially the minimum charge on a good offered AL Materials - To derive the supply curve of a factor - A backward bending supply curve of factor

d. The determination of wages in price-takers markets Basic Knowledge - Equilibrium price - Surplus and shortage AL Materials - Wage determination by supply of and demand for labour in a competitive factor market - Meanings of a surplus/shortage in the labour market - The meanings of transfer earning and economic rent. - The possibility of the existence of rent in the case of factor supply.

AL Microeconomics Course Outline

Topic 8 The Factor Market Present Value and Investment Decisions

a. The Generalized concept of capital Basic Knowledge - Capital as a factor input - Interest as the returns to capital AL Materials - Capital as income earning assets - Interest as a representation of income

b. The existence of interest Basic Knowledge - Interest as the returns to investment - Interest as the returns to borrowing and lending AL Materials - Interest as a link between lender and borrower - The relationship between interest and delaying or bringing forward purchasing power

c. Discounting, present value, interest and investment decision AL Materials - The discounting problem: Present Value and Future Income - Equations of discounting income streams: single income, finite and infinite streams of income - Variables affecting the present value of an income stream - Maximum willingness to pay and present value - The Marginal Efficiency of Capital (MEC) and Marginal Efficiency of Investment (MEI) d. The relationship among present consumption, investment and future consumption AL Materials - The choice between present consumption and future consumption - The effect of a change in interest on the choice of the timing of consumption

e. The relationship among wealth, income & interest Basic Knowledge - The concept of stock - The concept of flow AL Materials - The concept of wealth - The concept of income - The discounting equation and the relationship between wealth, income and interest

AL Microeconomics Course Outline

Topic 9 Efficiency

a. Pareto Efficiency b. Production Efficiency c. Consumption Efficiency d. Market Efficiency

Topic 10 Divergence between Private and Social Costs

a. Private Cost (Benefit) and Social Cost (Benefit) Basic Knowledge - The meaning of cost in economics - The meanings of explicit cost and implicit cost AL Materials - The difference between private cost (benefit) and social cost (benefit), i.e. externality - The divergence between private cost and social cost and resource allocation - The possible forms of government intervention for correcting externalities

b. Private Property Rights AL Materials - The meaning of private property rights - Property rights and market exchange

c. Pigous two road analysis d. Coase Theorem e. Productive efficiency, property rights and externality f. Transaction cost and allocative efficiency

g. Public goods Definition, characteristics, pricing problems and production