ECON E-10a Principles of Economics

Harvard University Extension School Spring, 2014

Course Web Site: http://isites.harvard.edu/course/ext-22004/2014/spring Professor: Bruce Watson econe10a@dce.harvard.edu Lectures: Tuesdays, 7:40 9:40 PM Teaching Assistants: Teo Nicolais (For distance students) On-line sections: To Be Announced On Campus TA TBA Teo.the.Econ.TA@gmail.com Science Center Hall A

SYLLABUS
This course provides an introduction to current economic issues and to basic economic principles and methods. The economist John Maynard Keynes wrote that "the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood." Economics is not primarily a set of answers, but rather a method of reasoning. By the end of the semester, you will be able to use the analysis practiced in the course to form your own judgments about many of the major economic problems faced by the United States and other countries. In the first part of the semester, we will focus on microeconomics, which is the study of the interaction of people and firms in markets. Since we live in a market economy, this study will help you to understand how American society organizes its economic affairs. We will examine how the forces of supply and demand operate in the markets for goods and services. Theories concerning firm behavior will be examinedhow companies decide how much to produce, and how to produce it. Once we have mastered some basic techniques for thinking about economic problems, we will apply those techniques to such important social issues as pollution, poverty, income distribution, and international trade. During the second half of the semester, we will focus this on macroeconomics, the study of the economy as a whole. We will study economic growth and development, business cycles, and the impact of both monetary and fiscal policy on inflation, unemployment, interest rates, investment, the exchange rate, and international trade.

Course Requirements Exams There will be two exams for the course, a midterm and a final. Both will be taken on-line. The midterm will be held on Tuesday, March 11, and the final will be held on Tuesday, May 13. Detailed instructions will be given to students well in advance of the exam dates. Please Note: It is your responsibility to plan your travel ahead around exam dates. In particular, the date of the final exam is determined by the Registrar and cannot be changed for any reason. Requests to take the final on a different day, including requests for a make-up final, involve a formal appeal process through the Extension School Examination Committee. No makeup midterms will be given. Please see the section below on Grading to understand how your semester grade will be determined if you must miss the midterm for any reason.

Problem Sets There will be eleven problem sets assigned during the term. These will be multiple choice assignments completed on MyEconLab. Further instructions about MyEconLab will be given before the first problem set is assigned. The due date on problem sets cannot be extended for any reason. However, the lowest two of the problem set scores for the semester will be dropped from the calculation of each students semester grade. So, if you cannot do one of the problem sets some week, that will just be one of the scores that gets dropped.

Grading Grading Mechanics: Assigning Letter Grades Based on a Curve Semester grades are determined by a curve. The nature of a curve is that your grade is based on your performance relative to all other students in the class. It does not involve an absolute standard, e.g., 90 100 = A, 80 90 = B, etc., which you may be used to from some other courses. I believe that a curve is ultimately the fairest way to determine grades, since it does not set some arbitrary absolute standard, but judges students on their performance relative to their peers. With a curve, your grade is based on your percentile rank in the class, i.e., the percentage of students in the class who scored below you. If you are in the 60th percentile, for example, that means that 60% of students had scores equal to or below yours, while 40% of students had scores above yours. How We Calculate Total Semester Points To determine your letter grade for the semester the curve is applied to your total semester points. Your total semester points will be the higher of: 30% problem set scores 35% midterm exam 35% final exam or 30% problem sets 70% final exam

So, if you do poorly on the midterm, or are unable to take it for any reason, your final exam will automatically be reweighted to be 70% of your semester grade, with the problem sets constituting the remaining 30%. We will make these calculations automatically for each studentyou dont have to opt in or opt out of one or the other weighting. We will make certain you receive the highest grade to which you are entitled. Your problem set average (dropping the two lowest) will be out of 100 pts. possible; your midterm will be out of 100 pts. possible; and your final will be out of 133.33 points possible. Alternatively, we will calculate your total semester points based on 100 pts. possible on the problem set average, and 233.33 pts. possible on the final. These two methods yield the two alternative weightings mentioned in the first paragraph of this section. For each student, we will use whichever weighting results in a higher semester point total for that student. For example, suppose you average 83/100 on your highest problem sets (dropping your lowest two) and 93/100 on your midterm. Now, lets say there are 240 pts. possible on the final, and your score is 200/240 pts. Note that 200/240 = .833 (Meaning, you got 83.3% of the possible points on the exam). We would then multiply .833 by 133.33, and by 233.33, to calculate your total points using the two possible weightings on the final. This would give you .833 ! 133.33 = 111.11 pts. weighting the final at 30%, and .833 ! 233.33 = 194.44 pts weighting the final at 70%.

So, for the semester, your total points would be 83 + 93 + 111.11 = 287.11 pts using the 30/30/40 weighting. Using the 30/70 weighting, your total points would be 83 + 194.44 = 277.44. So, we would use the 30/30/40 method, since it gives you higher total points. The Curve Used in Assigning Your Letter Grade for the Semester To determine your semester grade, we will employ the (very generous) curve given below: Letter Grade A AB+ B BC+ C CD E/F Percentile Rank Range of Letter Grade 60th Percentile 100th Percentile 45th Percentile 60th Percentile 40th Percentile 45th Percentile 35th Percentile 40th Percentile 28th Percentile 35th Percentile 25th Percentile 28th Percentile 22nd Percentile 25th Percentile 20th Percentile 22nd Percentile 5th Percentile 20th Percentile 0th Percentile 5th Percentile

To return to our example above: recall that your hypothetical semester point total is 287.11/333.33, and suppose that 43% of students had semester point totals higher than yours (i.e. above 287.11), and therefore 57% had semester point totals less than or equal to yours (i.e. at or below 287.11). This means that you are in the 57th percentile overall. Your semester grade, then, would be a A-. Readings Most of the assigned readings listed below are drawn from the textbook: Economics (4th ed.), by Glenn Hubbard and Anthony OBrien. The majority of the reading in the text reinforces material you'll learn in class, but some of the topics we cover may not appear in the book. Conversely, some of the assigned reading is for background, and will not be covered explicitly in class. The rest of the assigned reading will be drawn from recent newspaper and magazine articles. These will all be available on the course web site.

Student Profiles Every term, the course enrolls people from an amazing variety of backgrounds and walks of life. And, the reasons for taking the class are almost as diverse as students backgrounds. In order to share a little of their life stories with their classmates, students are encouraged to submit a few lines about themselves to the course email address: econe10a@dce.harvard.edu. These will be formatted and posted on a Student Profiles page on the course web site. Please note that this is completely voluntary, and also that the only people who will be able to view what you submit will be your classmates and the teaching staffnobody else. You do not have to identify yourself with anything besides your first name if you dont want to. Just submit a few lines about your job, background, interests, and/or why you have decided to study finance. Even if you decide not to submit a profile, you will enjoy reading about some of your fellow students.

COURSE CALENDAR
Tues., Jan. 28 Introduction and Overview Purchase options for the book and MyEconLab Basics of Demand and Supply Equilibrium

Hubbard and OBrien: Chap. 1 Sections 3.1 3.2 (pp. 68 82) ________________________________________________________________________________ Tues., Feb. 4 Tips and Tricks on MyEconLab Equilibrium The Necessity of Equilibrium Price Controls Comparative Statics Hubbard and OBrien: Sections 3.3 3.4 (pp. 82 93) PS 1 Available on MyEconLab _______________________________________________________________________________ Tues., Feb. 11 Elasticity Price elasticity of demand Income elasticity of demand Cross-price elasticity of demand Price elasticity of supply Hubbard and OBrien: Chap. 6 (pp. 170 197) PS 1 Must Be Completed by 11:45 PM (Eastern US Time) PS 2 Available on MyEconLab _______________________________________________________________________________ Tues., Feb. 18 Introduction to Welfare Theory Consumer Surplus, Producer Surplus, Economic Surplus Market Efficiency Welfare Analysis of Price Controls Case Study: Rent Control Hubbard and OBrien: Sections 4.1 4.3 (pp. 102 115) An Inside Look at Policy, pp. 122 123 PS 2 Must Be Completed by 11:45 PM (Eastern US Time) PS 3 Available on MyEconLab _______________________________________________________________________________

Tues., Feb. 25

Basics of Trade Welfare Analysis of Trade and Tariffs Hubbard and OBrien: Chap. 9 (pp. 272 299)

PS 3 Must Be Completed by 11:45 PM (Eastern US Time) PS 4 Available on MyEconLab _______________________________________________________________________________ Tues., March 4 Behind the Supply Curve: Producer Theory Firms Costs and Revenues Production Profit Maximization Hubbard and OBrien: Sections 11.1 11.5 (pp. 352 367) Case Studies: Marginal vs. Average Cost PS 4 Must Be Completed by 11:45 PM (Eastern US Time) PS 5 Available on MyEconLab _______________________________________________________________________________ Mon., March 10 PS 5 Must Be Completed by 11:45 PM (Eastern US Time) _______________________________________________________________________________ Tues., March 11 Midterm Exam _______________________________________________________________________________ Tues., March 25 Macroeconomics: Introduction and Overview Three Key Macro Variables Gross Domestic Product (GDP) Unemployment Inflation Hubbard and OBrien: Chap. 19 (pp. 614 633) Chap. 20 (pp. 640 667) PS 6 Available on MyEconLab _______________________________________________________________________________

Tues., April 1

The Economy in the Long Run: Economic Growth and Development The Role of Productivity Growth Across Countries Convergence Three Approaches to Economic Development Some Success Stories Hubbard & OBrien: pp. 712 717 Sections 22.4 22.5 (pp. 726 739) Jeffrey Sachs, Institutions Matter, but Not for Everything, Finance and Development, June, 2003. Kenneth Rogoff, Unlocking Growth in Africa, Finance and Development, June, 2003. Tim Harford, The Undercover Economist, Chap. 8, Why Poor Countries are Poor Tim Harford, The Undercover Economist, Chap. 10, How China Grew Rich Can India Overtake China, Foreign Policy, July/August, 2003

PS 6 Must Be Completed by 11:45 PM (Eastern US Time) PS 7 Available on MyEconLab _______________________________________________________________________________ Tues., April 8 The Economy in the Short Run Business Cycles: Facts and Figures The Components of Aggregate Expenditure Hubbard and OBrien: Section 21.3 (pp. 694 702) Sections 23.1 23.2 (pp. 750 766) PS 7 Must Be Completed by 11:45 PM (Eastern US Time) PS 8 Available on MyEconLab _______________________________________________________________________________ Tues., April 15 Aggregate Demand and the Aggregate Demand Curve Aggregate Supply Long-run Aggregate Supply Short-run Aggregate Supply Macroeconomic Equilibrium Business Cycles Explained Hubbard and OBrien: Chap. 24 (pp. 794 819) PS 8 Must Be Completed by 11:45 PM (Eastern US Time) PS 9 Available on MyEconLab _______________________________________________________________________________

Tues., April 22

Monetary Policy Money, Banking, and the Role of the Fed Open Market Operations Interest Rates Money and Inflation in the Long Run: The Quantity Theory of Money Hubbard and OBrien: Chaps. 25 26 (pp. 829 895)

PS 9 Must Be Completed by 11:45 PM (Eastern US Time) PS 10 Available on MyEconLab _______________________________________________________________________________ Tues., April 29 Fiscal Policy: Introduction and Overview Facts and Figures The Role of Social Security The Government Spending and Tax Multipliers The Loanable Funds Market Revisited Hubbard and OBrien: Chap. 27 (pp. 905 937) PS 10 Must Be Completed by 11:45 PM (Eastern US Time) PS 11 Available on MyEconLab _______________________________________________________________________________ Tues., May 6 Review Session

PS 11 Must Be Completed by 11:45 PM (Eastern US Time) _______________________________________________________________________________ Tues., May 13 Final Exam