Principle of Economics
Feng Lu: Principle of Economics (China's Version), Peking University Press, Beijing, 2002 (Teaching Material)
Joseph E. Stiglitz, Carl E. Walsh: Economics, Third Edition, W. W. Norton & Company, 2002
N. Gregory Mankiw: Principle of Economics, Third Edition, South-Western College Pub, 2003
Structure of the Course:
1. What is Economics
2. Price and supply/demand model & mechanism
3. Consumer behavior
4. Production theory
5. Cost analysis
6. Efficiency of competition
7. Cost of Intervention (Price Controls)
8. Theory of monopolistic competition
10. Information asymmetry
12. Externality & Public goods
13. Introductory macroeconomics
14. Supply/demand of currency
15. Financial system
16. International trade
17. International balance of payment
18. Income Determination
19. Aggregate supply demand model
By studying Principle of Economics, students should learn some basic knowledge of Economics, master fundamental economic concepts and use economic theories to analyze micro- and macroeconomic phenomena in our daily life. In addition, students should lay a solid foundation to study further economic courses.
Regular attendance, participation, 4 quizzes: 28%
1 Essay: 12% (Requirement: Based on the principles and methods of economics, the essay should analyze and explain some real situation in economic life.)
Mid –Term Test: 30%
Final Test: 30%
Credits & Workload:
4 Credits & 4 hours per Week (teaching) + 2 hours per Week (tutoring); 12 Weeks, 48 hours (teaching) + 24 hours (tutoring)
Market Efficiency - Market Failures
Recall that: Adam Smith's “invisible hand” of the marketplace leads self-interested buyers and sellers in a market to maximize the total benefit that society can derive from a market.
But market failures can still happen.
Market Failures: Externalities
When a market outcome affects parties other than the buyers and sellers in the market, side-effects created are called externalities.
Externalities cause markets to be inefficient, and thus fail to maximize total surplus.
An externality arises…
…when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect.
When the impact on the bystander is adverse, the externality is called a negative externality.
When the impact on the bystander is beneficial, the externality is called a positive externality.
Examples of Negative Externalities
Loud stereos in an apartment building
Examples of Positive Externalities
Restored historic buildings
Research into new technologies