Welcome to the course website for Intermediate Microeconomics (Econ 302 at Penn State, taught in the second summer session of 2011).

Daily slides and answer keys can be found by clicking the calendar on the left (e.g., on budgets and elasticities and cost minimization). Much of class time was devoted to going through sample problems together and to short quizzes (as discussed in the syllabus), following Dr. Mark McLeod's workbook and general approach to the course.

Notes on the material and relevant links for each topic are under Topics (e.g., welfare and demand).

# Archive

Here is an archive of front-page content during the course:

### Week 1

I recommend you pick up the Econ 302 Workbook by Mark McLeod, or join a study group with a copy. Please let me know if you cannot find one. The workbook is an essential part of your preparation for quizzes, but quiz questions will not necessarily be of the same form as those found in the workbook.

### Website tour

I will post weekly notes here on the front page, primarily to list the topics relevant to upcoming quizzes and tests. The week's topics, readings, and exercises in the workbook are also here. Find these notes for other weeks in the "Archive" below.

A sketch of the course content can by found under "Topics," on the left. Underlined sentences describe skills you will need to master a topic. Bonus questions for quizzes and tests can come from any other material on the website, covered in class, or in the readings. Slides from lectures and quizzes can be found by clicking on the corresponding day in the Calendar.

The syllabus or notes on a topic can be printed by clicking the icon in the upper right. To print or download slides and answer keys, click the icon. You can comment on slides and quizzes (to correct errors, for example) by clicking "Comments." In the forum, anyone can start a discussion and old ANGEL announcement emails will be archived.The text might be too small relative to the width of the webpage on your screen. To increase the text size in Windows hold "CTRL" and press "+"; and in OS X hold "⌘" and press "+." To decrease the size, do the same with "-" instead of “+.”

### This week

This week we will study competitive markets using the supply-and-demand model, and discuss the effects of price controls. On Friday, we will start calculating and applying elasticities.

- Become familiar with…Supply and Demand, Applying Supply and Demand, Elasticities and Models
- Read…Perloff 1 (optional), 2
- Practice…WB 1

### Quiz 1

- Surplus and shortage
- Demand and Supply shifters
- Graphing and shifting the curves
- A bonus question?

### New stuff on next week's quizzes (anticipated)

- Computing equilibrium from formulas
- Price restrictions
- Per-unit taxes
- Zero-cost monopoly

### Week 2

This week, we will use elasticities to study per-unit taxes and the behavior of a zero-cost monopolist. We will also start on the foundations of the Demand curve — consumer behavior.

- Topics: Applying Supply and Demand, Monopoly (the zero-cost part), Elasticities and Consumer Choice
- New readings: Perloff 3, 4.1-4.3
- New practice: WB 3-5

I say “new” because it's worthwhile to go back and do the readings and practice from last week if you missed them.

### Quiz 2

- (Quiz 1 stuff)
- Supply-and-demand model calculations
- Finding the equilibrium
- Evaluating price floors and ceilings

### Quiz 3

- (Earlier stuff)
- Elasticities
- Calculating elasticities
- Interpreting elasticities and classifying goods — necessities vs luxuries, complements vs substitutes, normal vs inferior
- Applying elasticities to the (zero-cost) monopoly problem
- Applying elasticities to per-unit tax problems

### New stuff on next week's quiz and midterm (anticipated)

- Budgets
- Graphing them
- Determining if a bundle is affordable or not
- Identifying a bundle X and Y, on the graph given expenditures on X and Y
- Finding and interpreting the slope

- Preferences — graphing them, etc.
- Solving the consumer's problem and deriving Demand from it

### Week 3

This week we will look at the standard Consumer Choice model and tie it in with the supply-and-demand model by deriving a consumer's individual Demand curve. We will study how Demand responds to a change in price in detail by decomposing this response into two parts. We will also briefly revisit income responses by looking at how individual demand varies with income. Finally, we may start on General Equilibrium.

Copies of the textbook should be on reserve at the library later this week; I'll send an email when they are available.

*Regarding midterm prep.* If you have any questions on anything covered so far, we should meet to go over it before the midterm on Friday, either at the office hours Tu Th 1:30-3:30 Kern 401 or at a separate appointment. As usual, feel free to come to office hours or make an appointment in a group. The workbook is essential to your preparation; so please contact me if you cannot find a copy.

- Topics: Consumer Choice, Applying Consumer Theory and maybe General Equilibrium
- Readings: Perloff 4, 5.1-5.3 and maybe 10.1-10.3, 10.5
- Practice: WB 5-9 and maybe 10, 11

### Quiz 4

- (Earlier stuff)
- Spending
- Budgets
- Graphing them, labeling and interpreting intercepts
- Determining if a bundle is affordable or not
- Identifying a bundle X and Y, on the graph given expenditures on X and Y
- Finding and interpreting the slope

- Preferences — graphing them, etc.
- Solving the consumer's problem for Cobb-Douglas preferences

### Midterm 1

- (Earlier stuff)
- Decomposing the price response

### New stuff on next week's quizzes (anticipated)

- General equilibrium in two markets
- General equilibrium in pure exchange/the Edgeworth box
- Graphing it
- Finding equilibrium
- Efficiency theorems, concepts, terms

- Production — returns to scale, graphing isoquants, etc.
- Cost minimization and deriving the cost function

### Week 4

This week we will discuss General Equilibrium, a way of studying multiple (or all) markets at once; and look at the foundation of the Supply curve — how producers respond to the price of a good and to input prices.

- Topics: General Equilibrium, Production and maybe Perfect Competition
- Readings: Perloff 6, 7, 10
- Practice: WB 10-13

### Quiz 5

- General equilibrium in two markets
- General equilibrium in pure exchange/the Edgeworth box
- Graphing it
- Finding equilibrium
- Efficiency theorems, concepts, terms

### Quiz 6

- Production — concepts, returns to scale, graphing isoquants, etc.
- Cost minimization and deriving the cost function

### Next week's quiz and midterm (anticipated)

- Short-run firm behavior
- Monopoly behavior
- Perfectly competitive firm behavior
- Welfare measured in $ — graphing, calculating, in several applications:
- Price controls
- Per-unit taxes
- Perfect competition
- Monopoly

### Week 5

Our understanding of firms' costs allows us to study firms' market behavior, namely their decisions about whether to operate, and how much to produce. We can apply this for firms in several "market structures": perfect competition, monopoly and quantity-choice duopoly (which is called Cournot duopoly).

We will also discuss a useful way of comparing market outcomes which economists call “welfare.” Comparing levels of welfare is similar to comparing (Pareto) efficient and inefficient outcomes, as we did in the General Equilibrium unit. However, …

- Welfare can be measured, while efficiency is 0-1 (either an outcome is efficient or it isn't).
- A higher level of welfare is not unambiguously better; it is part of
*normative economics.*

Welfare is highest when the quantity traded is determined by the intersection of the Demand and Marginal Cost curves, at Q^{*}, the competitive market quantity. We will compare this welfare-maximizing outcome with what happens under different market structures and under market interventions in a competitive market — like price ceilings and floors and per-unit taxes.

If there is time before Thursday, we will discuss measures of market power, which suggest where an imperfectly competitive market — like an duopoly — lies on the continuum between the two extremes of perfect competition and monopoly. Next week, we will use game theory to consider strategic issues firms face.

*Regarding the second and last midterm.* The midterm will be cumulative, so topics and small exercises from before midterm 1 might appear (but not long ones, like the price response decomposition, which will only be seen again, possibly, on the final). I plan to set aside Thursday's class for midterm prep, so please prepare any questions you would like to go over.

- Topics: Applying the Competitive Model, Monopoly and probably not Oligopoly
- Readings: 8, 9, 11 and maybe 13
- Practice: WB 14-16 and maybe 19

### Quiz 7: Perfect competition and welfare

You may need to do any or all of the following

- Solve for the equilibrium n
^{*}, q^{*}, P^{*}as in WB 14 - Calculate the CS, PS and DWL before and after a price floor or ceiling
- Firm optimization in the short run

### Midterm 2

New stuff not on earlier quizzes:

- Price ceilings and floors
- Welfare calculations
- CS, PS, DWL calculations
- Graphing

- The monopoly problem
- Solve the monopolist's problem for Q
^{M}, P^{M} - Calculate the CS, PS, and DWL of the monopoly
- Graphing

- Solve the monopolist's problem for Q
- General Equilibrium/Supply-and-Demand in two markets

### Next week's quizzes (anticipated)

- Per-unit taxes
- Welfare calculation
- CS, PS, DWL calculations
- Government revenue calculation
- Graphing

- The full monopolist's problem
- Given technology, find costs
- (Do the stuff above)
- Also find the Lerner Index (LI)

- Cournot duopoly
- Solve for the equilibrium q
_{1}^{*}, q_{2}^{*}, P^{*} - Calculate the CS, PS and DWL of the duopoly
- Calculate the markup for the duopoly

- Solve for the equilibrium q
- Plain game theory
- Solve a normal-form games for all its Nash equilibria
- Solve an extensive-form game using backward induction

- Solve for equilibrium in a Stackelberg duopoly

### Week 6

This week we will study firm behavior under monopoly and oligopoly. Oligopolistic markets are imperfectly competitive, lying between perfect competition and monopoly. We will discuss measures of market power, which tell us where a market lies on the continuum between these two extremes. We will also use game theory to consider strategic issues firms face. If there is time, we'll talk about more complicated pricing behavior by firms.

- Topics: Oligopoly, Game Theory and maybe Pricing
- Readings: 12, 13.1-13.6
- Practice: WB 17-20, final practice packet

### Quiz 8

You may need to do any of the following:

- Per-unit tax, given inverse D and inverse S
- Calculate CS, PS, GR, DWL, W
^{*}

- Calculate CS, PS, GR, DWL, W
- Cournot duopoly
- Solve for the equilibrium q
_{1}^{C}, q_{2}^{C}, P^{C} - Calculate the CS, PS and DWL of the duopoly
- Calculate the markup for the duopoly

- Solve for the equilibrium q

### Quiz 9

- Solve an extensive-form game using backward induction
- Solve for equilibrium in a Stackelberg duopoly
- Solve a normal-form games for all its pure-strategy Nash equilibria

### Next week's quiz and new material on the final (anticipated)

- Solve a normal-form game for all its Nash equilibria (including mixed-strategy equilibria)
- Monopoly pricing
- Setting access and usage fees ("two-part tarriffs")
- Producing for two markets with different prices ("multimarket price discrimination")

### Week 7

This week, we will discuss some issues in monopoly pricing decisions. On Wednesday, after the last quiz, we will review for the final.

- Topics: Game theory and Pricing
- Readings: 12
- Practice: WB 21, final practice packet

### Quiz 10

- One of these two:
- Selling one good using two prices, or a "two-part tarriff"
- Selling one good in two markets, or "multimarket price discrimination"

- Selling two goods
- Solve a normal-form game for all its Nash equilibria (including mixed-strategy equilibria)

### Final

See the practice packet for details.

### Final

### Preparation for final

All topics for the final are covered in the packet.

**Review** q1, q2, q3, q4, m1, q5 q6, q7, m2, q8, q9, q10

**Practice** final practice packet, answers, answers dbl-page

The course is over, see here for the curve.

## Final

I made a couple mistakes in the answer key: on p5, the top-left box should say ABC; and on p6, I should have said that Demand decreases, so the equilibrium price and quantity both fall.