$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ INTRODUCTION TO MICROECONOMICS E201 $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ Dr. David A. Dilts Department of Economics, School of Business and Management Sciences Indiana - Purdue University - Fort Wayne $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ May 10, 1995 First Revision July 14, 1995 Second Revision May 5, 1996 Third Revision August 16, 1996 Fourth Revision May 15, 2003 Fifth Revision March 31, 2004 Sixth Revision July 7, 2004 $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ Introduction to Microeconomics, E201 8 Dr. David A. Dilts All rights reserved. No portion of this book may be reproduced, transmitted, or stored, by any process or technique, without the express written consent of Dr. David A. Dilts 1992, 1993, 1994, 1995 ,1996, 2003 and 2004 Published by Indiana - Purdue University - Fort Wayne for use in classes offered by the Department of Economics, School of Business and Management Sciences at I.P.F.W. by permission of Dr. David A. Dilts TABLE OF CONTENTS Preface.............................................................................................................................. ii Syllabus............................................................................................................................. iv I. Lecture Notes 1. Introduction to Economics ...................................................................................... 2 2. Economic Problems................................................................................................ 7 3. Interdependence and the Global Economy ............................................................ 12 4. Supply and Demand ............................................................................................... 18 5. Elasticity ................................................................................................................. 29 6. Consumer Behavior................................................................................................ 33 7. Costs ...................................................................................................................... 37 8. Competition ............................................................................................................ 43 9. Monopoly................................................................................................................ 50 10. Resource Markets .................................................................................................. 56 11. Wage Determination............................................................................................... 60 12. Epilogue.................................................................................................................. 68 II. Reading Assignments 1. Introduction to Economics ...................................................................................... 71 2. Economic Problems................................................................................................ 87 3. Interdependence and the Global Economy ............................................................ 101 4. Supply and Demand ............................................................................................... 116 5. Elasticity ................................................................................................................. 134 6. Consumer Behavior................................................................................................ 146 7. Costs ...................................................................................................................... 154 8. Competition ............................................................................................................ 165 9. Monopoly................................................................................................................ 179 10. Resource Markets .................................................................................................. 191 11. Wage Determination............................................................................................... 200 12. Epilogue.................................................................................................................. 217 III. Appendix A Sample Midterm Examination ........................................................................................... 222 Sample Final Examination................................................................................................. 229 IV. Appendix B Bibliography, book list ...................................................................................................... 236 i PREFACE This Course Guide was developed in part because of the high cost of college textbooks, and in part, to help organize students= studying by providing lecture notes. This Guide was made possible because the administration of IPFW had the foresight to make the campus= printing services available to duplicate these sorts of materials, and provide them at cost through the auspices of the University Bookstore in Kettler Hall. Without the active participation of both the campus duplicating services, and its most cooperative staff, and the bookstore this would not be available. The department, school nor the professor make anything whatsoever from this Guide. In fact, the department=s budget and the professor=s own resources are used in the writing of the Guide, and the numerous draft copies that are produced in the revisions of this document. Like the sign in the Mom and Pop bait shop on Big Barbee Lake says, “This is a non-profit organization, wasn’t planned to be B it just sorta worked out that way.” Well, actually it was planned to be a non-profit enterprise in this particular case. The professor also wishes to acknowledge the fact that several students have proposed changes, improvements, caught errors, and helped to make this document more useful as a learning tool. Naturally, any errors of omission or commission are those of the professor alone. ii Introduction & Use of Guide This Course Guide is provided to assist students in mastering the subject matter presented E201, Introduction to Microeconomics. The commercially available student guides and workbooks are notoriously inadequate and are simply of little value. At several institutions, prepared course materials are made available to students to assist their learning. What research has been done concerning these course specific materials, suggests that students' performances are enhanced by having access to these types of materials. Because microeconomics is such an important foundation for business, engineering, and the social sciences this Guide has been prepared. The purpose of this Course Guide is fourfold. First, the course syllabus is included in the Guide. Second, the Guide provides the student a listing of the key concepts covered in the lectures. Third, the Guide provides students with problems and study-guides to aid each individual in the retaining the materials presented by the text and lecture. Fourth, sample exams are offered as self-test exercises and to give students an idea of the level of mastery expected in this course. Organization The Guide is divided into eleven units, following the organization of the Tentative Course Outline found in the syllabus. At the end of each chapters in the reading assignments there is a section containing the key concepts developed in the chapter, sample exam questions and a brief study guide. Also in the Guide is the course syllabus included before the eleven sections covering the substantive portions of the course. Following the reading assignments are the lecture notes for each chapter. The final section of the Guide contains sample examinations, including answers. Note to Students There is no substitute for doing the reading assignments, attending class, and working through the material. A teacher cannot cause a student to learn, all a teacher can do is to organize and present the material, grades can provide a small extrinsic reward for accomplishment, but it is the student's ability, effort, and desire that determine how much and how well they will learn. It is hoped this Guide will help in the learning effort. iii SYLLABUS E201, Introduction to Microeconomics Dr. David A. Dilts Department of Economics and Finance Room 340D Neff Hall School of Business and Management Sciences Phone 481-6486 Indiana - Purdue University - Fort Wayne COURSE POLICIES 1. In all respects, the policies of the School, Department, IPFW and the University shall be applied in this course. 2. Office hours will be posted on the professor's door, appointments may also be arranged. The Professor's office is Neff 340D. 3. The following grade scale will be applied in this course for determination of final grades: A 100 - 90 percent B 89 - 80 percent C 79 - 70 percent