COURSE OUTLINE GIFT BUSINESS SCHOOL

ECO-505 Economic Theory and Applications Fall Semester, 2010

Faculty: Credit hours: Course level: Campus/Location/Instruction Mode: Course Convenor:

GIFT Business School 3 Graduate (MSc Accounting and Finance and M-Com) GIFT University/On Campus/In Person Dr. Tasneem Akhter 055-3892989-173 0308-8882398, dr.tasneem@gift.edu.pk 2:00-3:00 Tuesday & Wednesday None

Consultation hours: Pre-requisite: Timing This document was last updated: BRIEF COURSE DESCRIPTION

28 September, 2011

The purpose of this course is to provide students an introduction to economics especially related to micro and macro economic theory and issues with a proper understanding of core concepts and methods of economics as a foundation for subsequent study of micro and macro economic topics required for managerial economics as well as for the professional training in the area. Microeconomics examines how consumers and firms make decisions and how they interact with each other in markets. The major areas of focus will be supply and demand analysis, elasticity concepts, consumer choice, and firms behavior, the organization of industry and market failure and differences among various market structures. Through examples and the use of graphs and tables, students will have a good understanding of the theory of consumer behavior, the theory of the firm, and how markets work. On the other hand, Macroeconomics deals with broad economic aggregates such as national income, the overall level of prices, unemployment and the money supply. The major areas of focus will be measurement of gross national product, consumption function, saving, investment, the fundamentals of international trade; the causes and effects of trade and budget deficits, the inputs market, goods market, money market, and economic growth. Business cycles will also be discussed. After defining key variables such as output, prices, inflation, unemployment, and exchange rate etc., we will develop various theoretical frameworks to formalize the relationships between these variables. The equilibrium AD-AS model will be covered with some basic applications. We

ECO 501- Economic Theory and Application Dr. Tasneem Akhter

will also discuss some of the readings and articles from specified journals, surveys, reports and newspapers especially on Pakistans Economy. This course aims to provide a solid understanding of basic economic principles and the ability to apply these tools and ideas in the fields of economics, business and management. COURSE OBJECTIVES By the end of the course, students will possess a clear understanding of how the economic theory of both micro & macroeconomics explains the economic problems faced by individual economic agents such as consumers, firms and factors of production as well as the situation of an economy. Upon completion of the course it is expected that students should be able to: understand the basic concepts of economics and various issues in the theory of micro & macroeconomics at a level appropriate for a first year business studies at graduate level understand the microeconomic models of demand and supply, consumer and firms behavior and market structures understand the forces determining and explaining microeconomic variables such as utility, price, cost, output, elasticity, efficiency, wage rate etc. appreciate the role of microeconomic theory in order to address the issues like optimal allocation of resources and development of sound public policies understand the basic structure of the economy understand the macroeconomic models underlying the goods, input and money market, as well as the IS-LM and AD-AS framework in a closed as well as in the open economy understand the forces determining macroeconomic variables such as inflation, unemployment, interest rates, and the exchange rate understand basic macroeconomic models as given by Classical, Keynesian, and Modernists appreciate the role of monetary and fiscal policies in solving macroeconomic problems LEARNING OUTCOMES At the end of this course, students would be expected to apply economic analysis to explanations of the micro & macroeconomics aspects of the economy. They should be able to: to solve and manipulate a variety of simple diagrammatic and algebraic models in the field of economics to identify the applications of, limitations to, and improvements in the models learned establish a framework of basic economic theory which can be extended and applied at later stages of the degree program. understand the economic related news and issues know about relationship among different microeconomic variables like scarcity, choice, opportunity cost, utility, quantity, demand, supply, market, prices, production, cost and efficiency as well as macroeconomic variables like inflation, unemployment, GDP growth and also the role of fiscal and monetary policies and their impact on the economy provide an insight into the major policy debates in the field of business and economics

ECO 501- Economic Theory and Application Dr. Tasneem Akhter

CONTENTS

SESSION

TOPIC/CHAPTER TITLE

TOPICS COVERED
The economic perspective (scarcity & choice, rational behavior, marginalism), why study economics, economic methodology, microeconomics and macroeconomics, pitfalls to sound reasoning, graphs and their meaning The foundation of economics (unlimited wants/scarce resources), employment and efficiency (production possibility curve, opportunity cost, productive & allocative efficiency), unemployment, growth and the future, circular flow model, economic systems Markets, Demand (law of demand, the demand curve, market demand, change(s) in demand and quantity demanded), Supply (law of supply, the supply curve, determinants of supply, change(s) in supply and quantity demanded), market equilibrium (surpluses, shortages, equilibrium price and quantity, changes in equilibrium), Government-Set Prices (price ceilings & price floors ) Price elasticity of demand (the price elasticity coefficient (Ed)and formula, interpretation of Ed, Mid-point formula, graphical analysis, total-revenue test, elasticity and total revenue curve, determinants), cross elasticity and income elasticity of demand, Price elasticity of supply (concepts and application) Consumers objective, Rationality, Utility concepts, law of diminishing marginal utility, consumer choice, utility maximizing rule, utility maximization and the demand curve, budget constraint, preferences, indifference curves and their properties, consumer optimization, income and substitution effects, derivation of demand curve, some applications, Do people really think this way Consumer surplus, Producer surplus, Market efficiency Economic costs (explicit and implicit costs, economic profit, short run & long run), ShortRun Production relationships), Short-Run Production Costs, Long-Run Production Costs, Applications & Illustrations Four market models, Characteristics of Pure competition, Firms demand curve, Profit maximization in the short run, marginal cost and short-run supply, Profit maximization in the long-run, Pure competition & Efficiency MID TERM EXAM (Based on all the topics covered)

CASES / EXAMPLES

1-2

The Nature and Method of Economics

The Economizing problem

Ten Principles of Economics

4-5

Individual Markets: Demand and Supply

Supply, Demand and the Price of Paper

6-7

Elasticity of Demand and Supply

Why did OPEC fail to keep the Price of Oil High

8-9

The Theory of Consumer Choice/Behavior

10

Consumers, Producers, and the Efficiency of Markets

The Costs of Production 11-12

13-14

Pure Competition

15

ECO 501- Economic Theory and Application Dr. Tasneem Akhter

Pure Monopoly An introduction to Pure Monopoly (examples, objectives, barriers to entry, Monopoly demand, output and price determination, Price discrimination, regulated monopoly Monopolistic competition (fundamentals, price and output in monopolistic competition, monopolistic competition & efficiency), Oligopoly (basic issues, Game-Theory: an overview, models ) A firms demand for labor, Labor market equilibrium, The other factor of production: Land and capital Assessing the Economys performance, GDP (conceptual issues and measurement), expenditure approach, income approach, other national accounts (NDP, NI, DPI etc.), Nominal GDP versus Real GDP, Shortcomings Economic growth, , Business cycle, Unemployment, Inflation Consumption and Investment Schedules, Aggregate Expenditure Model in closed economy, Equilibrium GDP, Changes in Equilibrium GDP and the Multiplier, Aggregate expenditure model in open economy, Equilibrium versus FullEmployment GDP, Limitations of the Model Aggregate Demand Curve, determinants of Aggregate Demand, Aggregate Supply in the Long Run, Aggregate Supply in the Short Run, determinants of Aggregate Supply, Equilibrium and changes in equilibrium (Demand Pull Inflation, Recession & Cyclical Unemployment, Cost Push inflation, Full Employment with Price-Level Stability ) Meaning, Expansionary Fiscal Policy, Contractionary Fiscal Policy, Financing of Deficits, Problems, Criticisms and Complications Meaning, Tools, Monetary Policy, Real GDP and the Price Level The economic basis for trade, Supply and Demand analysis of Exports and Imports, Trade barriers, Protection Competition or Monopoly?

16

17

Monopolistic Competition and Oligopoly

Squabbling in OPEC

18

The Markets for the Factors of Production

19-20

Measuring Domestic Output and National Income

National Income Accounts of Pakistan: Some Facts

21-22

Introduction to Economic Growth and Instability

Economics: An Introduction and Vocabulary

23

The Aggregate Expenditure Model

The Aggregate Expenditure: A case of Pakistan Economy

24-25

Aggregate Demand and Aggregate Supply

The Great Depression: Causes and Impact

26 27 28

Fiscal Policy Monetary Policy International Trade

Federal Budget 2008: An Overview An Overview of Monetary Policy Statement 2008

Please note: This is a proposed schedule only and may be varied at the discretion of the instructor to give a greater or lesser degree of emphasis to particular topics. TEXTS AND SUPPORTING MATERIALS Prescribed Texts and Readings: 1. McConnel, Campbell and Stanley Brue (2005), Economics, Sixteenth Edition, McGraw Hill/Irwin Publishing. 2. Mankiw, N. Gregory (2000), Principles of Economics, 4 Edition, Harcourt Publishers International. 3. Rukstad, Michael G. (1982), Economics: An Introduction and Vocabulary , Harvard Business School.
th

ECO 501- Economic Theory and Application Dr. Tasneem Akhter

4. McCraw, Thomas K. (1991), The Great Depression: Causes and Impact, Harvard Business School. 5.Peterson, Craig, H., Lewis, Chris, W. and Jain, Sudhir, K. (2009), Managerial Economics. 4 Pearson Prentice Hall. Reference Material: 1. Government of Pakistan (2007), Pakistan Economic Survey, Ministry of Finance, Economic Advisors Wing, Islamabad. 2. Government of Pakistan (2007), State Bank Annual Report, State Bank of Pakistan, Karachi. Internet Resources:
th

Edition Publisher

1. 2. 3. 4. 5. 6. 7. 8.

www.pakistan.gov.pk (Government of Pakistan) www.statspak.gov.pk (Statistics Division) www.finance.gov.pk (Finance Division) www.mopd.gov.pk (Planning and Development Division) www.sbp.org.pk (State Bank of Pakistan) www.pide.org.pk (Pakistan Institute of Development Economics) www.ft.com (Financial Times) www.businessweek.com (Business Week)

ASSESSMENT

Item

Assessment Task

Length

Weighting

Relevant Learning Outcomes Every topic Topics covered Topics covered From any economic topic 1 14 1 28

Due Day and Time

1. 2. 3. 4. 5. 6.

Class Participation Quizzes Assignments Project Mid Term Exam Final Examination

During Class hours 6 x 10-15 mins 300 500 words 3000 5000 words 3 hours 3 hours

20% 10% 10% 10% 20% 30%

In every class Various Weeks in Class Various Weeks in Class Last week of the semester During Class hours During formal examination period

Students must complete each component of the assessment to the satisfaction of the course instructor, and achieve an overall mark of at least 50% in order to pass the course. All components of the above assessment are compulsory, and must be completed in order to obtain a pass grade. Students are expected to perform satisfactorily in each item.