Emporia State University
School of Business
Department of Accounting and Information Systems
Syllabus for the Economics section of the Major Field Test
All lecture notes are in PDF format, and you will need the free Adobe Acrobat reader to read and print the files.
A. Basic Economic Concepts
1. Scarcity and opportunity cost
2. Production possibilities frontier
Ten Principles of Economics Lecture Notes
- Principle 1: People face tradeoffs
- Principle 2: Opportunity Cost
Thinking Like an Economist
- The production possibilities frontier
3. Comparative advantage and specialization
Interdependence and the Gains from Trade Lecture Notes
A Parable for the Modern Economy
Production Possibilities
Specialization and Trade
Comparative Advantage: The Driving Force of Specialization
Absolute Advantage
Opportunity Cost and Comparative Advantage
Comparative Advantage and Trade
Applications of Comparative Advantage
4. Economic Systems
Ten Principles of Economics Lecture Notes
How People Interact
Principle 5: Trade Can Make Everyone Better Off
Principle 6: Markets Are Usually a Good Way to Organize Economic Activity
Principle 7: Governments Can Sometimes Improve Market Outcomes
Adam Smith and the Invisible Hand
B. Microeconomics
1. Supply and Demand
The Market Forces of Supply and Demand Lecture Notes
Markets and Competition
Competitive Markets
Competition: Perfect and Otherwise
Demand
The Demand Curve
Market Demand versus Individual Demand
Shifts in the Demand Curve
Supply
The Supply Curve
Market Supply versus Individual Supply
Shifts in the Supply Curve
Supply and Demand Together
Equilibrium
Three Steps to Analyzing Changes in Equilibrium
How Prices Allocate Resources
Supply, Demand, and Government Policies Lecture Notes
Controls on Price
How Price Ceilings Affect Market Outcomes
How Price Floors Affect Market Outcomes
Evaluating Price Controls
2. Models of Consumer Choice
Elasticity and its Applications Lecture Notes
The Elasticity of Demand
The Price Elasticity of Demand and Its Determinants
Computing the Price Elasticity of Demand
The Midpoint Method
The Variety of Demand Curves
Total Revenue and the Price Elasticity of Demand
Elasticity and Total Revenue along a Linear demand Curve
Other Demand Elasticities
- The Income Elasticity of Demand
- The Cross-Price Elasticity of Demand
Three Applications of Supply, Demand, and Elasticity
Can Good News for Farming be Bad News for Farmers
Why did OPEC Fail to Keep the Price of Oil High
Does Drug Interdiction Increase or Decrease Drug-Related Crime
Consumers, Producers, and the Efficiency of Markets Lecture Notes
Consumer Surplus
Willingness to Pay
Using Demand Curve to Measure Consumer Surplus
How a Lower Price Raises Consumer Surplus
What Does Consumer Surplus Measure
Producer Surplus
Cost and Willingness to Sell
Using the Supply Curve to Measure Producer Surplus
How a Higher Price Raises Producer Surplus
Market Efficiency
The Benevolent Social Planner
Evaluating the Market Equilibrium
Market Efficiency and Market Failure
3. Production and Costs
The Costs of Production Lecture Notes
What are Costs?
Total Revenue, Total Cost, and Profit
Costs as Opportunity Costs
The Cost of Capital as Opportunity Cost
Economic Profit versus Accounting Profit
Production and Costs
The Production Function
From the Production Function to the Total Cost Curve
The Various Measures of Cost
Fixed and Variable Cost
Average and Marginal Cost
Cost Curves and Their Shapes
Typical Cost Curves
Costs in the Short Run and the Long Run
The Relationship between Short-Run and the Long-Run Average Total Cost
Economies and Diseconomies of Scale
4. Product Market Structures
Firms in Competitive Markets Lecture Notes
What is a Competitive Market?
The Meaning of Competition
The Revenue of a Competitive Firm
Profit Maximization and the Competitive Firm’s Supply Curve
A Simple Example of Profit Maximization
The Marginal Cost Curve and the Firm’s Supply Decision
The Firm’s Short Run Decision to Shut Down
The Firm’s Long Run Decision to Enter or Exit the Market
Measuring Profit in Our Graph for the Competitive Firm
The Supply Curve in a Competitive Market
The Short Run: Market Supply with a Fixed Number of Firms
The Long Run: Market Supply with Entry and Exit
Why do Competitive Firms Stay in Business If They Make Zero Profit
A Shift in Demand in the Short Run and Long Run
Monopoly Lecture Notes
Why Monopolies Arise
Monopoly Resources
Government Created Monopolies
Natural Monopolies
How Monopolies Make Production and Pricing Decisions
Monopoly versus Competition
A Monopoly’s Revenue
Profit Maximization
A Monopoly’s Profit
Monopoly Drugs versus Generic Drugs
The Welfare Cost of Monopoly
The Deadweight Loss
The Monopoly’s Profit: A Social Cost
Public Policy toward Monopolies
Increasing Competition with Antitrust Laws
Regulation
Public Ownership
Doing Nothing
Price Discrimination
A Parable about Pricing
The Moral of the Story
The Analytics of Price Discrimination
Examples of Price Discrimination
Oligopoly Lecture Notes
Between Monopoly and Perfect Competition
Markets with Only a Few Sellers
A Duopoly Example
Competition, Monopolies and Cartels
The Equilibrium for an Oligopoly
How the Size of an Oligopoly Affects the Market Outcome
Case Study: OPEC and the World Oil Market
Game Theory and the Economics of Cooperation
Oligopolies as a Prisoners’ Dilemma
Other Examples of the Prisoners’ Dilemma
The Prisoners’ Dilemma and the Welfare of Society
Why People Sometimes Cooperate
Public Policy toward Oligopolies
Restraint of Trade and Antitrust Laws
Controversies over Antitrust Policies
Monopolistic Competition Lecture Notes
Competition with Differentiated Products
The Monopolistically Competitive Firm in the Short Run
The Long Run Equilibrium
Monopolistic versus Perfect Competition
Advertising
The Debate over Advertising
Advertising as a Signal of Quality
Brand Names
5. Resource Markets
The Markets for Factors of Production Lecture Notes
The Demand for Labor
The Competitive Profit maximizing Firm
The Production Function and the Marginal Product of Labor
The Value of Marginal Product and the Demand for Labor
What Causes the Labor Demand Curve to Shift
The Supply of Labor
The Trade-off Between Work and Leisure
What Causes the Labor Supply Curve to Shift
Equilibrium in the Labor Market
Shifts in Labor Supply
Shifts in Labor Demand
6. Market Failure and the Role of Government
Externalities Lecture Notes
Externalities and Market Efficiency
Welfare Economics: A Recap
Negative Externalities
Positive Externalities
Technology Spillovers, Industrial Policy, and Patent Protection
Private Solutions to Externalities
The Types of Private Solutions
The Coase Theorem
Why Private Solutions Do Not Always Work
Public Policies toward Externalities
Command and Control Policies: Regulation
Market Based Policy 1: Corrective Taxes and Subsidies
Market Based Poliicy 2: Tradeable Pollution Permits
Objections to the Economic Analysis of Pollution
Public Goods and Common Resources Lecture Notes
The Different Kinds of Goods
Public Goods
The Free Rider Problem
Some Important Public Goods
The Difficult Job of Cost-Benefit Analysis
Common Resources
The Tragedy of the Commons
Some Important Common Resources
Conclusion: The Importance of Property Rights
C. Macroeconomics
1. Measurement of Economic Performance
Measuring a Nation’s Income Lecture Notes
- The Economy’s Income and Expenditure
- The Measurement of Gross Domestic Product
- The Components of GDP
- Real versus Nominal GDP
A Numerical Example;
The GDP Deflator
- GDP and Economic Well-Being
Measuring the Cost of Living Lecture Notes
- The Consumer Price Index
- How the Consumer Price Index Is Calculated
- Problems in Measuring the Cost of Living
- The GDP Deflator versus the Consumer Price Index
Correcting Economic Variables for the Effects of Inflation
- Dollar Figures from Different Times
- Indexation
- Real and Nominal Interest Rates
Unemployment and Its Natural Rate Lecture Notes
Identifying Unemployment
How is Unemployment Measured
Does the Unemployment Rate Measure What We Want It to
How Long Are the Unemployed Without Work
Why Are There Always Some People Unemployed
Job Search
Why Some Frictional Unemployment is Inevitable
Public Policy and Job Search
Unemployment Insurance
Minimum Wage Laws
Unions and Collective Bargaining
The Economics of Unions
Are Unions Good or Bad for the Economy
The Theory of Efficiency Wages
Worker Health; Worker Turnover; Worker Effort; Worker Quality
2. Aggregate Demand and Aggregate Supply
4. Monetary Policy and Fiscal Policy
Aggregate Demand and Aggregate Supply Lecture Notes
Three Key Facts about Economic Fluctuations
Fact 1: Economic Fluctuations Are Irregular and Unpredictable
Fact 2: Most Macroeconomic Quantities Fluctuate Together
Fact 3: As Output Falls, Unemployment Rises
Explaining Short-Run Economic Fluctuations
The Assumptions of Classical Economics
The Reality of Short-Run Fluctuations
The Model of Aggregate Demand and Aggregate Supply
The Aggregate-Demand Curve
Why the Aggregate-Demand Curve Slopes Downward
Why the Aggregate-Demand Curve Might Shift
The Aggregate-Supply Curve
Why the Aggregate-Supply Curve Is Vertical in the Long Run
Why the Long-Run Aggregate-Supply Curve Might Shift
Using AD and AS to Depict Long Run Growth and Inflation
Why the Aggregate-Supply Curve Slopes Upward in the Short Run
Why the Aggregate Supply Curve Might Shift
Two Causes of Economic Fluctuations
The Effects of a Shift in Aggregate Demand
The Effects of a Shift in Aggregate Suppy
Money Growth and Inflation Lecture Notes
The Classical Theory of Inflation
The Level of Prices and the Value of Money
Money Supply, Money Demand, and Monetary Equilibrium
The Effects of a Monetary Injection
A Brief Look at the Adjustment Process
The Classical Dichotomy and Monetary Neutrality
The Inflation Tax
The Fisher Effect
The Costs of Inflation
A Fall in Purchasing Power? The Inflation Fallacy
Shoeleather Costs
Menu Costs
Relative Price Variability and the Misallocation of Resources
Inflation-Induced Tax Distortions
Confusion and Inconvenience
A Special Case of Unexpected Inflation: Arbitrary Redistributions of Wealth
3. Money and the Banking System
The Monetary System Lecture Notes
The Meaning of Money
The Functions of Money; The Kinds of Money
Money in the U.S. Economy
The Federal Reserve System
The Fed’s Organization
The Federal Open Market Committee
Banks and the Money Supply
The Simple case of 100-Percent Reserve Banking
Money Creation with Fractional Reserve Banking
The Money Multiplier
The Fed’s Tools of Monetary Control
Problems in Controlling the Money Supply:
5. Economic Growth
Production and Growth Lecture Notes
Economic Growth around the World
Productivity: Its Role and Determinants
Why Productivity is so Important
How Productivity is Determined
Economic Growth and Public Policy
The Importance of Saving and Investment
Diminishing Returns and the Catch Up Effect
Investment from Abroad
Education
Property Rights and Political Stability
Free Trade
Research and Development
Population Growth
D. International Economics
1. International Trade and Policy
Application: International Trade Lecture Notes
The Determinants of Trade
The Equilibrium without Trade
The World Price and Comparative Advantage
The Winners and Losers from Trade
The Gains and Losses of an Exporting Country
The Gains and Losses of an Importing Country
The Effects of a Tariff
The Effects of an Import Quota
The Arguments for Restricting Trade
Trade Agreements and the World Trade Organization
2. Exchange Rates
3. Balance of Payments
Open-Economy Macroeconomics: Basic Concepts Lecture Notes
The International Flows of Goods and Capital
The Flow of Goods: Exports, Imports, and Net Exports
The Flow of Financial Resources: Net Capital Outflow
The Equality of Net Exports and Net Capital Outflow
Saving, Investment, and Their Relationship to the International Flows
The Prices for International Transactions: Real and Nominal Exchange Rates
Nominal Exchange Rates
The Real Exchange Rate
First Theory of Exchange-Rate Determination: Purchasing-Power Parity
The Basic Logic of Purchasing-Power Parity
Implications of Purchasing-Power Parity
Limitations of Purchasing-Power Parity
Suggested Textbook:
Brief Principles of Macroeconomics (4th ed.) by N. Gregory Mankiw
Principles of Microeconomics (4th ed.) by N. Gregory Mankiw
Published by Thomson/Southwestern
Any principles of economics textbook may be used to prepare for the Major Field Test, the two mentioned above are used at ESU.
Web Site for Practice Questions
http://websites.swlearning.com/cgi-wadsworth/course_products_wp.pl?fid=M20b&product_isbn_issn=0324319169&discipline_number=413
(for Microeconomics)
http://websites.swlearning.com/cgi-wadsworth/course_products_wp.pl?fid=M20b&product_isbn_issn=0324236972&discipline_number=413
(for Macroeconomics and International trade)
On each website there is a window near the top of the screen where you have to select the chapter number. Once you have done this, there is a list of buttons on the left hand side of the screen. Click on the button for “Tutorial Quiz.” At the end of the quiz you will be asked to enter the email address of an instructor (this can be left blank) and your email (you should enter your email address here so that you have a copy of your answers for review).
Since there are a number of topics common to Microeconomics and Macroeconomics, some of the topics listed on these two websites, and the questions, will be the same.