HE 9091 Principles of Economics

July Semester 2016

Course Description and Scope

This course covers fundamental tools and applications of concepts in microeconomics and
macroeconomics. The section on microeconomics focuses on markets as a mechanism for
allocating scarce resources. Using tools of welfare economics, it analyses demand, supply,
market system and the concepts of elasticity. It also addresses market efficiency, outcomes from
market failures, production and firms with market influence. The section on macroeconomics
provides a mix of classical and Keynesian ideas, addressing the forces that shape the economy in
both the short run and the long run. Topics include the calculation of GDP, analysis of inflation
and employment, theory of economic growth, the role of financial markets, fiscal and monetary
policies and the international economy.

Proposed Lecture Schedule

Week No. Topics Required Readings

1 Lecture 1: Introduction to Economics FBL Chapters 1, 3 & 6

8 Aug 16 1.1 Scarcity and Cost-Benefit Principles

1.2 Opportunity Cost and Incentive Principle
1.3 Demand and Supply
1.4 Market Equilibrium and Price Control
1.5 Shifts in Demand and Supply
1.6 Efficiency and Equilibrium Principles

2 Lecture 2: Elasticity and Consumer Behaviour FBL Chapters 4, 5 &

6
15 Aug 16 2.1 Price Elasticity of Demand
2.2 Income Elasticity of Demand
2.3 Cross-Price Elasticity of Demand
2.4 Price Elasticity of Supply
2.5 Total Utility and Marginal Utility
2.6 The Rational Spending Rule
2.7 Demand and Consumer Surplus
2.8 Supply and Producer Surplus

3 Lecture 3: Perfect Competition and Efficiency FBL Chapters 6 & 7

22 Aug 16 3.1 Perfectly Competitive Markets

3.2 Production and Cost
3.3 Profit and Loss in the Short Run
3.4 Market Equilibrium and Efficiency
Week No. Topics Required Readings
3.5 Taxes and Efficiency
3.6 Long Run Adjustment in Perfect Competition

4 Lecture 4: Imperfect Competition and Game FBL Chapters 8 & 9

Theory
29 Aug 16 4.1 Sources of Market Power
4.2 Profit Maximization for Monopolist
4.3 Price Discrimination
4.4 Game Theory and Strategic Decisions
4.5 Prisoners Dilemma
4.6 Decision Tree

5 Lecture 5: Externalities, Property Rights and FBL Chapters 10 & 11

Economics of Information
5 Sep 16 5.1 External Costs and Benefits
5.2 The Coase Theorem
5.3 Property Rights and the Tragedy of the
Commons
5.4 Optimal Amount of Information
5.5 Asymmetric Information
5.6 Adverse Selection and Moral Hazard

6 Lecture 6: Economics of Public Policy FBL Chapters 13 & 14

6.1 Economics of Health Care Delivery
12 Sep 16 6.2 Environmental Regulation
6.3 Public Policy in Pollution Control
6.4 Public Good and Private Good
6.5 Optimal Quantity of Public Good
6.6 Additional Functions of Government and
Sources of Inefficiency

7 Lecture 7: Gross Domestic Product (GDP) and FBL Chapters 15 & 16

Inflation
19 Sep 16 7.1 Gross Domestic Product (GDP)
7.2 The Expenditure Method
7.3 Nominal and Real GDP
7.4 Real GDP and Economic Well-Being
7.4 The Consumer Price Index
7.5 Adjusting for Inflation
7.6 Costs of Inflation
8 Recess
9 Lecture 8: Unemployment and Economic FBL Chapters 17 & 18
Growth
3 Oct 16 8.1 Demand and Supply in Labour Market
8.2 Measuring Unemployment
Week No. Topics Required Readings
8.3 Types of Unemployment
8.4 Impediments to Full Employment
8.5 Economic Growth and Labour productivity
8.6 Determinants of Average Labour Productivity
8.7 Policies to Promote Economic Growth

10 Lecture 9: Capital Formation, Financial FBL Chapters 19, 20 &

Markets and Money Supply 23
10 Oct 16 9.1 Saving, Wealth and National Saving
9.2 Investment and Capital Formation
9.3 Demand and Supply of Saving
9.4 Bonds and Stocks
9.5 Commercial Banks and Money Creation
9.6 Central Bank and Money Supply
9.7 Money Demand and Money Supply

11 Lecture 10: Aggregate Expenditure and FBL Chapters 21, 22 &

Stabilization Policy 23
17 Oct 16 10.1 Recession and Expansion
10.2 Potential Output and Output Gap
10.3 The Keynesian Model
10.4 Aggregate Expenditure and Multiplier
10.5 Short Run Equilibrium Output
10.6 Fiscal Policy
10.7 Monetary Policy

12 Lecture 11: Aggregate Demand, Aggregate FBL Chapter 24 & 25

Supply and Macroeconomic Policy
24 Oct 16 11.1 The Aggregate Demand Curve
11.2 The Aggregate Supply Curve
Quiz period: 11.3 Aggregate Demand-Aggregate Supply
24 Oct 16 to Analysis
28 Oct 16 11.4 Anti-Inflationary Monetary Policy
11.5 Response to Aggregate Demand Shock
11.6 Response to Aggregate Supply Shock
NOTE:
A Quiz will be conducted during Tutorial 10
Coverage: Lecture 1 to Lecture 10
Format: 20 Multiple Choice Questions to be
answered in 40 minutes.

13 Lecture 12: Exchange Rate, International FBL Chapter 26

Trade and Capital Flow
31 Oct 16 12.1 Exchange Rate Determination
12.2 Flexible and Fixed Exchange Rates
Week No. Topics Required Readings
12.3 Nominal and Real Exchange Rates
12.4 Purchasing Power Parity Theory
12.5 Trade Balance and Net Capital Inflows
12.6 International Capital Flows

Basic Text

Robert H. Frank and Ben S. Bernanke and Hon-Kwong Liu (FBL), Principles of Economics Asia
Global Edition, McGraw Hill, 2015.
ISBN: 978-1-259-01184-9 or M1-259-01184-8

Method of Instruction

Lectures : 2 hours per week, commences in Week 1 and end in Week 13

Tutorials : 1 hour per week, commences in Week 2 and end in Week 14

Course Assessment

Quizzes : 20%
Class Participation : 10%
Final Examination : 70%
_____
100%

Lecturer E-mail Address

*Dr Tan Khay Boon khayboon@ntu.edu.sg

* Course Co-ordinator