Economics of Markets

Lecturer(s)

Name

Contact number/s

email

Consultation times

Economics of Markets 1 Introduction

Unit Plan

Economics is the bedrock of management. An understanding of this subject is vital to furthering your understanding of various subjects in the areas of Finance, Production, Marketing, HR and others. The students will be exposed to the concepts governing micro level units like a firm and individual. They will learn vital cogs in the economic wheel like demand, supply, costs, market structure, pricing and regulation. The focus of any Management subject is to apply the knowledge base to practical business settings and widen the horizons of understanding real life Management issues. 2 Course Credits and Timings

This course is a three-credit course. 3 Teaching and Learning Methodology

Lecture During the lecture you will be introduced to the topic for that week. It is important to note that the coverage of each topic during the lecture will not be completely comprehensive. You will need to read the references provided and attempt the tutorial questions that cover that topic. It is important to note that for each topic a set of objectives is given and it is your responsibility to ensure that you meet those objectives. Student centric activity Every lecture session, the students must note, will include dynamic and vibrant student centered activities. 4 General Learning Outcomes On completion of this course the student will be able to: 1. Develop a deep understanding of the nuances of economic science 2. Appreciate the intricate relationship between economics and management 3. Understand how the tools and techniques of economics are utilised in real time management Bangalore Management Academy Page 2 of 14

Economics of Markets

Unit Plan

4. Improve your conceptual framework for decision making and problem solving 5. Develop a solid logical and analytical mental framework 6. Appreciate the theoretical underpinnings of what you observe in the newspapers and journals 7. Apply concepts studied in class to real life situations

5 5.1

Text Books and Other Readings [Resources and reading list] Text Boks

Samuelson, P. A. & Nordhaus, W. D. (2005). Economics (18th Ed.), New Delhi: Tata McGraw-Hill. (referred to as S&N) Mankiw, N. G. (2007). Principles of Economics (4th Ed.), Thompson South-Western. (referred to as Mw) 5.2 Recommended texts

Schiller, B. R. (1996). Essential of Economics (2nd Ed.), Boston: McGraw-Hill. (referred to as Sr) Milgrom, P and Roberts, J, 1992 Economics, Organization and Management, Prentice Hall The New Management Economics by William Boyes. McGuigan, JR, Moyer, RC and Harris, FHD 2001, Managerial Economics:

Applications, Strategy and Tactics 9th edn. South-Western College Publication Brickley, J, Smith C and Zimmerman JL Organizational Architecture McGraw-Hill Ed 2001, Managerial Economics and

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Economics of Markets 5.3 On-line Resources

Unit Plan

There are many internet sites which may be of interest to you. Reference is made to many of these sites in the lecture material. It is expected that you will access this material during the semester. The Economics network http://www.economicsnetwork.ac.uk/links/othertl.htm

John

Kane

at

the

State

University

of

New

York

at

Oswego

http://www.oswego.edu/~economic/econweb.htm This schedule provides a guideline on the topics covered and activities required each week.

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Economics of Markets 6 Programme of Study - Study schedule/Lecture programme Economics Assessments

Unit Plan

Week Begining
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 Week 11 Week 12

Lecture Topics Introduction, Scarcity & Choice Demand/Supply Analysis

Class Exercise 1 (10%) Feedback 1 Class Exercise 2 (15%) Feedback - 2

Elasticity of Demand Consumer Behaviour Theory Market Structure and Perfect Competition Mid Term (30%) Imperfect Competition

Feedback - midterm Assignment set Class Exercise 3 (15%) Feedback - 3 Assignment due (10%)

Macroeconomic Indicators Inflation Unemployment Assignment PPT presentation (10%) National Income Accounting

6.1

Session 1 - Introduction to Economics

6.1.1 Lecture Content This section introduces the main methods of microeconomics and managerial economics. This unit lays the foundations for the analysis in the course. 6.1.2 Learning Outcome On completion of this module the student should be able to: 1. Describe what economics studies 2. Explain the differences between positive economics and normative economics 3. Describe and distinguish capitalism and socialism Bangalore Management Academy Page 5 of 14

Economics of Markets 4. Explain why economists might disagree

Unit Plan

5. Construct, graph and interpret Production Possibility Frontiers (PPF) 6.1.3 Readings References. S&N Ch. 1, 2, Appendix 1; Mw Ch. 1-3; Sr Ch. 1. 6.1.4 Web based Reading Weber, Christian E, Gains From Trade for Nonmaterialists, Environmentalists, and the Overworked, Journal of Economic Education; Fall2007, Vol. 38 Issue 4, p452-460 6.2 Session 2- Demand and Supply Analysis

6.2.1 Lecture Content In this section you will learn how producers decide how much to sell and consumers decide how much to buy and how the interaction of buyers and sellers determines the market price. 6.2.2 Student- centred activities 6.2.3 Learning Outcome On completion of this module the student should be able to: 1. Draw demand and supply curves and use them to determine equilibrium prices and quantities 2. Explain why demand curves slope down and supply curves slope up 3. Explain how non-equilibrium positions tend towards the equilibrium 4. Use demand and supply curves to describe the effects of price ceilings and price floors 5. Explain how changes in economic circumstances effect the demand and supply curves 6. Use the concepts of movement along a demand or supply curve and movement of the curves to explain the effects of changes in economic conditions 7. Analyze demand and supply shifts and equilibrium changes given situations Bangalore Management Academy Page 6 of 14

Economics of Markets 6.2.4 Readings References. S&N Ch. 3; Mw Ch. 4, Ch. 6; Sr pp.77-84, Ch. 5. 6.3 Session 3 Elasticity of Demand

Unit Plan

6.3.1 Lecture Content In this section students will understand the sensitivity of demand to changes in prices and why some commodities have a more sensitive demand than others. 6.3.2 Learning Outcome On completion of this module the student should be able to: 1. Define and give examples of complement and substitute products 2. Define, calculate and interpret calculations of price elasticity of demand 3. Define, calculate and interpret calculations of income elasticity of demand 4. Define, calculate and interpret calculations of cross-price elasticity of demand 5. Explain the relationship between elasticity, price changes and total revenue 6. Determine the elasticity of various commodities and give reasons 7. Evaluate effects of changes in elasticity of demand based on factors described 6.3.3 Readings References. S&N Ch. 4; Mw Ch. 5; Sr pp. 85-95. 6.3.4 Web based Reading Gormon M F, Estimation of an implied price elasticity of demand through current pricing practices, Applied Economics; 5/20/2005, Vol. 37 Issue 9, p1027-1035 6.4 Session 4 - The Theory of the Consurmer

6.4.1 Lecture Content In this section students consider the theory of the consumer. The unit illustrates how the optimal choice of consumers depends on their preferences and on how their choice depends on the price of the commodities and on their income.

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Economics of Markets 6.4.2 Learning Outcome On completion of this module the student should be able to: 1. Define and calculate consumer surplus 2. Define utility 3. Define and calculate marginal utility

Unit Plan

4. Explain how the concept of marginal utility allows the determination of a consumers optimal choice 5. Describe the use of indifference curves and budget lines to determine a consumers optimal choice. 6. Derive a demand curve using indifference curve analysis 6.4.3 Readings References. S&N Ch.5 Appendix 5; Mw pp. 137-142, Ch. 21. 6.5 Session 5- The Theory of the Firm

6.5.1 Lecture Content The theory of the firm is the focus of this section, which discusses the nature and objectives of the firm, exploring the technological conditions under which the firm operates. The structure of the costs of the firm, both in the short run and in the long run, are analysed in the context of how it can minimise its costs and maximise its profits. 6.5.2 Learning Outcome On completion of this module you should be able to: 1. Define and calculate profit 2. Explain the advantages and disadvantages of individuals combining resources as a firm 3. Distinguish between fixed costs and variable costs 4. Explain opportunity cost 5. Evaluate opportunity costs of various activities 6. Distinguish between excess profit, zero economic profit and loss Bangalore Management Academy Page 8 of 14

Economics of Markets 7. Define marginal cost and explain its usefulness

Unit Plan

8. Explain why the marginal cost curve cuts the average cost curve at its minimum 9. Describe and calculate producer surplus 10. Describe economies of scale and how they originate 11. Describe diseconomies of scale 12. Describe the typical short-run average cost curve and explain its shape 13. Describe economies of scope 14. Describe economies of experience 15. Explain the relationship between a series of short-run average cost curves and the long-run average cost curve 6.5.3 Readings References. S&N Ch. 6, 7, Appendix 7; Mw pp. 143-158, Ch. 13. 6.6 Sessions 6 to 8 Competitive and Monopolistic Markets, Monopolistic Competition and Oligopoly 6.6.1 Lecture Content This weeks lecture focuses on equilibrium in competitive and in monopolistic markets. For perfect competition, one looks at equilibrium in the short run (when productive capacity is fixed) and in the long run (where productive capacity is variable). For monopoly, the critical conditions for a profit-maximising monopolistic firm are analysed together with an analysis of how equilibrium conditions must be modified if the monopolist is able to discriminate amongst its customers. Markets with few sellers, or oligopolistic markets, are studied. These types of markets are neither perfectly competitive nor monopolistic. Finally, the relationships between these four models are discussed and important extensions are investigated. 6.6.2 Learning Outcome On completion of this module the stiudent should be able to: 1. State the conditions for a perfectly competitive market 2. Describe the concept of price taker Bangalore Management Academy Page 9 of 14

Economics of Markets 3. State what is meant by a sunk cost

Unit Plan

4. Explain why, in a competitive market, maximum profit occurs when marginal cost equals price 5. Define and calculate the shutdown condition 6. Discuss, with examples, the possible advantages and disadvantages of monopolies 7. Define natural monopoly 8. Discuss sources of market imperfections 9. Define oligopoly 10. Define cartel 11. Describe Monopolistic competition 12. Give examples of barriers to entry 13. Explain the concepts of price discrimination and product differentiation 14. Describe the main forms of Intellectual property rights patents, trademarks, copyright 15. Discuss the economic costs of imperfect competition 16. Discuss regulation of monopolies 6.6.3 Readings References. S&N Ch. 8, 9, 10; Mw Ch. 14-17; Sr Ch. 6, 7. 6.7 Session 9 Inflation and Unemployment

6.7.1 Lecture Content Economists find a close relationship between inflation and unemployment. Upon completion of this lecture students will understand inflation and unemployment in the macro context and the various types of unemployment present in the economy. 6.7.2 Learning Outcome On completion of this module the student should be able to: 1. Describe the concepts of inflation and price index 2. Describe the impact on aggregate supply of inputs, technology and efficiency, wages, import prices, other input costs Bangalore Management Academy Page 10 of 14

Economics of Markets

Unit Plan

3. Describe and distinguish frictional, structural and cyclical employment 4. State Okuns Law 5. Describe the effects of low inflation, galloping inflation and hyperinflation 6. Describe the possible sources of inertial, demand-pull and cost-push inflation 7. Explain the relationship between inflation and unemployment and Phillips curve 8. Analyze the current unemployment and inflation situations and offer possible solutions 6.7.3 Readings References. S&N Ch. 31, 32; Mw Ch. 28-30, 35; Sr Ch. 10. 6.7.4 Web based Reading Eyink C N, Marn M V & Moss S C, Pricing in an inflationary, McKinsey Quarterly; 2008 Issue 4, p100-103, 4p 6.8 Session 10 National Income Accounting

6.8.1 Lecture Content This section looks at the different ways of measuring the wealth of a nation. The National Product can be measured either through a goods flow or an earnings flow. Measures such as Gross Domestic Product (GDP), Net Domestic Product (NDP) and Gross National Product (GNP) will be examined, along with the differences between gross and net and between real and nominal 6.8.2 Learning Outcome On completion of this module you should be able to: 1. Describe what macroeconomics studies; 2. Describe the differences between microeconomics and macroeconomics; 3. Define Gross Domestic Product (GDP) and describe both the Flow-of-Product and Earnings or Cost approaches to measuring it; 4. Explain the difference between real and nominal GDP and perform calculations using a GDP deflator; Bangalore Management Academy Page 11 of 14

Economics of Markets

Unit Plan

5. Describe Consumption (C), Gross Investment (I), Government Expenditure (G) and Net Exports (X) and their contribution to GDP; 6. Distinguish between GDP, Net Domestic Product (NDP), Gross National Product (GNP) and National Income (NI); 7. Define Disposable Income; 8. Explain how Price Indices are constructed and used to measure inflation; 9. Describe how India measures inflation 6.8.3 Readings References. S&N, Ch 20 & 21; Mw, Ch. 23 7 Assessment

There is both an internal and end term assessment for this module. 7.1 Internal Assessment

7.1.1 Assignments Internal assessments will be conducted throughout the tem and will be worth 50% of your grade. The break up of the internal assessments is as follows: 3 in class exercises One mid term test One written assignment PPT based on written assignment Assignment peer review 40% 30% 10% 10% 10%

The dates of all the internal assessments are specified in Page 5 of this Unit Plan. The class exercises will be closed book exercises and will have both conceptual and application oriented questions. These exercises will be of 20 minutes duration each.

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Economics of Markets

Unit Plan

The mid term test will be of two hours in duration. 40% of the questions will be direct conceptual questions and will be part of Part A. Part B consists of application oriented questions and would comprise 60% 0f the marks. This will be a closed book examination. The topic of the assignment will be distributed two weeks prior to the due date. This will be a group assignment. You will form yourselves into groups of 5 for this assignment. The written assignment will be 1,500 words in length and will have to be properly referenced (it is mandatory for the students to have a minimum of 5 citations of which 3 should be from the e-sources available through the college website) in the APA format. On the 3rd day after receiving the assignment, the initial bibliography will be handed over to the concerned faculty. On the 5th day, the feedback on the bibliography is returned to the students. On the 10th day, the students will hand over the first draft of the assignment to Writers Guild for correction. On day 13, the feedback on the first draft will be handed over to the students. Students will hand over the final version of their assignment on the week beginning May 10, 2010. They will submit a hard copy to the security and a soft copy to Ms. Shenaz to check for plagiarism. Assignments will be put into Turnitin to check for plagiarism. Assignments with greater than 10% similarity will not be accepted and awarded no marks. There will be an in class presentation of no greater than 10 minutes long based on your assignment. 7.1.2 Submission information Weighting Date/Week Time Place Format Discussed above Discussed above As set by the Professor Your lecturer/ Registry As per instructions

7.1.3 Reading During the entire duration of the course, you should make every effort to begin reading of the Business and Finance sections of the press and web sites. Managers act Bangalore Management Academy Page 13 of 14

Economics of Markets

Unit Plan

on the basis of what they expect to happen over the short and long term. It is important for you to get to know what is going on in the local and global economy at the time and for the issues that could affect your company. 7.1.4 Assignment instructions You will be provided with more detailed documents later in the semester. 7.1.5 Resources Your best sources of information are the Business and Finance pages of local papers. There are also many very good internet websites. In the case of websites however be very wary of the quality of the information being supplied. Make sure you are using reputable sources. Get into the habit of reading the paper regularly. 7.1.6 Marking criteria You will be provided with the marking criteria at the time the assignments are distributed. 7.2 End Term Examination

There will be final examination held in week 15. As the actual date and time of the examination has not yet been set students must be available for the entire period. You should not make any travel arrangements during this period. The Final Exam is a closed book exam and will last for three hours. It will cover the material from the entire course and will be worth a maximum of 50% of the mark of the unit. Please note that in order to pass the unit you are required to achieve a grade of at least 50% for the examination. If you do not you will fail the unit with a grade of N or FI (failed incomplete if your aggregate score is over 50). In either case you will be required to repeat the entire unit.

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