III.ECONOMICS

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A. Market Forces of Supply and Demand

1. Determinants of individual demand

2. Determinants of individual supply

3. Equilibrium price

4. Analyzing changes in equilibrium

5. How prices allocate resources

B. Elasticity

1. Determinants of price elasticity of demand

2. Determinants of price elasticity of supply

3. Microeconomic government policies

4. Analysis of price ceilings

5. Analysis of price floors

6. Tax incidence

7. Market efficiency

C. The Firm and Industry Organization

1. Organization of the business firm

a. Basic types of business firms

b. The principal-agent problem

2. Costs of production

a. Opportunity cost, explicit cost, and implicit cost

b. Accounting cost versus opportunity cost

c. The production function

d. Fixed and variable costs

e. Average and marginal cost

f. Cost curves and their shapes

g. Diminishing returns and cost curves

h. Output and costs in the long run

3. Firms in competitive markets

a. Definition of competition

b. Revenue of a competitive firm

c. Profit maximization for the competitive firm

d. Accounting profit and economic profit

e. The competitive firm’s supply curve

f. The supply curve in a competitive market

4. Monopoly

a. Barriers to entry (e.g., economics of scale, government licensing, patents, control

of essential resources)

b. How monopolies make production and pricing decisions

c. Public policy and monopolies

5. Oligopoly

a. Duopoly

b. Equilibrium for an oligopoly

c. Game theory and the economics of cooperation

d. Public policy when entry barriers are high

6. Monopolistic competition

a. Price and output in competitive markets with differentiated products

b. Allocative efficiency in monopolistic competition

D. Supply and Demand for Productive Resources

1. Demand for resources

a. Marginal productivity and the firm’s hiring decision

b. Supply, demand, and resource prices

2. Capital markets

a. Interest rates

b. Determination of interest rates

c. Money rate versus real rate of interest

d. Interest rates and risk

E. Measuring National Income

1. Gross Domestic Product (GDP)

2. Components of GDP

3. Real versus nominal GDP

a. GDP deflator

b. Using the GDP deflator to derive real GDP

c. The consumer price index

4. Problems with GDP as a measure of national product

F. Economic Fluctuations and Unemployment

1. Descriptive terms in business cycle analysis

2. Index of leading economic indicators

3. Types of unemployment

4. Problems of measuring unemployment

G. The Monetary System

1. Role of a central bank

2. Tools of monetary control

a. Open-market operations

b. Reserve requirements

c. Discount rate

H. Inflation: Causes and Consequences

1. Causes of inflation

2. Quantity theory of money

3. Equation of exchange

4. Deflation/stagflation

I. International Trade

1. Gains from specialization and trade

2. Economics of trade restrictions

a. Economics of tariffs

b. Economics of quotas

c. Other nontariff barriers to trade

d. Exchange-rate controls as a trade restriction

J. International Finance

1. Foreign exchange market

a. Organization of the foreign exchange market

b. The spot market

c. The forward market

d. Interest rate parity theory

2. Determination of exchange rates

a. Nominal exchange rates

b. Real exchange rates

c. Purchasing-power parity

3. Balance of payments

a. Current-account transactions

b. Capital-account transactions

c. Official reserve account

K. The Macroeconomics of an Open Economy

1. Supply and demand for loanable funds and for foreign-currency exchange

a. The market for loanable funds

b. The market for foreign-currency exchange

2. Equilibrium in the open economy

a. Net foreign investment flows

b. Government budget deficits

c. Trade policy

d. Political instability and capital flight

L. Aggregate Demand and Aggregate Supply

1. The aggregate demand curve

a. Reasons for downward sloping aggregate demand curve (e.g., wealth effect,

interest rate effect, exchange rate effect)

b. Shifts in the aggregate demand curve

2. The aggregate supply curve

a. Short-run aggregate supply curve

b. Long-run aggregate supply curve

c. Shifts in the short-run aggregate supply curve

3. The influence of monetary policy on aggregate demand

a. Money supply and money demand

b. Transmission of monetary policy

c. Unanticipated expansionary monetary policy

d. Unanticipated restrictive monetary policy

e. Timing of monetary policy

f. Anticipated monetary policy

4. The influence of fiscal policy on aggregate demand

a. Fiscal policy and the crowding-out effect

b. Problems of proper timing of fiscal policy

c. Fiscal policy as a stabilization tool

d. Supply-side effects of fiscal policy

5. Expectations and economic policy

a. Adaptive expectations hypothesis

b. Rational expectations hypothesis

c. The differences between adaptive and rational expectations

d. The implications of adaptive and rational expectations

e. Activist versus nonactivist stabilization policy

M. Sources of Economic Growth

1. Physical capital

2. Human capital

3. Technological progress

4. Institutional environment (e.g., property rights, political stability, competitive

markets, stable money and price, an open economy, moderate marginal tax rates)

N. Government Regulation

1. Regulation of business

2. Costs of regulation

O. Natural Resource Markets

P. Relationship of Economic Activity to the Investment Process