Learning Outcomes Assessment. Instructor: Timothy Dang Academic year Economics 361

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1 Learning Outcomes Assessment Economics 361 Instructor: Timothy Dang Academic year Overview Students who complete Economics 361 are expected to be able to use microeconomics to evaluate alternative choices (e.g., policy choices; business and personal choices) and to have some understanding of microeconomics as a science: a discipline that helps us understand how people behave and how institutions work. The course makes use of functions (e.g., utility functions, cost functions, profit functions) and calculus (e.g., for characterizing optimizing choices in terms of marginal conditions). Because Economics 361 is a foundation and prerequisite for all 400-level Economics courses, the coursespecific learning outcomes listed at the end of this document also serves as a summary, for instructors in 400-level courses, of what they can expect their students to know already. Among the six departmental learning objectives, Econ 361 focuses most directly on Critical Thinking: the course is about using analytical models to focus on an issue s essential features and to evaluate alternative courses of action. The course also addresses Social Responsibility through its focus on welfare economics (a system of criteria for weighing competing interests) and policy decisions) and Business Knowledge (essential parts of the course are the analytics of profit maximization, cost minimization, and competing in markets). Economics 361 contributes to eight of the program-wide learning subgoals for the undergraduate major: Critical Thinking Evaluate alternative solutions to a problem, using an appropriate analytical framework, and recommend an optimal solution. Use theoretical models to predict the behavior of individuals, firms, and economic systems. Business Knowledge Explain the relationships among business, government, and markets. Explain the determination of prices in a market economy. Apply profit-maximizing principles to common business decisions. Social Responsibility Describe how alternative courses of action affect various individuals and social groups. Describe, evaluate, and apply criteria for weighing competing interests, for the purpose of making policy decisions. Compare and evaluate the arguments supporting various government policies.

2 Summary of assessments for Critical thinking: 1.0 (on the four point scale) Business knowledge: 1.7 Social responsibility: 2.9 Evaluation Process The assessment instruments comprised seven exam questions requiring written answers. These questions, which are listed later in this report, appeared at different times during the semester. A question asked partway through the semester (#5) may not represent what a student will know by the end of the semester they may have improved their knowledge or forgotten some information. A question on the final exam (#4, #6) assesses only students who choose to take the final, trying to improve their course grade. Students who received A s in the class based on earlier exams (or are otherwise satisfied with their course grade) can opt out of the final exam. The median performance on each question is converted to an assessment score using the department s standard rubric: Median percentage score Assessment score 85% 4.0 Exceeds expectations 70% 3.0 Meets expectations 55% 2.0 Partial achievement 40% 1.0 Does not meet the goal Critical Thinking Question #1a was omitted in Spring In Fall 2012, the score on this question was 53%. Question #1b was new in Spring, It was on the third midterm exam, given at the end of the semester. It was worth 60 points, and the median score was 27 points, so the score on this question is 45%,. Question #2 was on the second midterm exam, given halfway through the semester. It was worth 16 points, and the median score was 4 points, so the score on this question is 25%. In Fall 2012, the score on this question was 33%. Overall assessment: 39%, or 1.0 on the four point scale. Business Knowledge Question #3 was repeated on both the first and second midterm exams in Spring On each of the exams, the question was worth 40 points, and the median score was 20 points, so the score for this question is 50%. In Fall 2012, the score on this question was also 50%.

3 Question #4 was on the first midterm exam. It was worth 54 points, and the median score was 39, so the score on this question is 72%. In Fall 2012, the score on this question was 29%. Overall assessment: 50%, or 1.7 on the four point scale. Social Responsibility Question #5 was on the first midterm exam. It was worth 20 points, and the median score was 20 points, so the score on this question is 100%. In Fall 2012, the score on this question was 75%. Question #6 was on the first midterm exam. It was worth 35 points, and the median score was 21 points, so the score on this question is 60%. In Fall 2012, the score on this question was 42%. Overall assessment: 69%, or 2.9 on the four point scale. Instructor s comments The assessment questions may be changed for academic year , based on the departmental review of its course-specific objectives. Cross-semester comparisons of performance on specific questions should note that questions have sometimes been administered at different times during the semester, during different semesters. Assessment Questions Critical Thinking Two questions are used to assess critical thinking, but three are listed here because question #1b in the Fall semester was replaced by #1a in the Spring semester. The following question is a straightforward application of a mathematical model with economic meaning, combining economics, mathematical analysis, and the economist s frequent tool of graphs: 2.1a A firm has the production function f(x 1, x 2 ) = x 1 1/4 x 2 1/4 + x 1 1/2. (a) Does the technology have decreasing, constant, or increasing returns to scale? (Show how you know.) decreasing returns constant returns increasing returns (b) Based on your answer to part (a), roughly what shape will the long-run marginal cost curve be? (You can describe it with just one or two words.)

4 The following question is classically analytical. It requires consideration of both changes (in consumer choices given changes in price) and reduction (separating income and substitution effects). (This question also is relevant for social responsibility since it asks about compensating variation (CV), a measure of the change in the consumer s well-being. 2.1b Arthur has the utility function u(q 1, q 2 ) = min{2q 1, 5q 2 }. Arthur's income is Y = $300. a) Prices are originally p 1 = $2, p 2 = $5. On the graph below, draw: i. Arthur's budget line. ii. Arthur's indifference curve through his original optimal choice. b) Now, the price of Good 1 rises to p 1F = $10. On the graph below, draw: i. Arthur's new budget line. ii. Arthur's new indifference curve through his final optimal choice. c) Decompose Arthur's choices into income and substitution effects. On the graph below, draw Arthur's compensated budget line. d) Find the substitution effect: SE = e) Find the income effect: IE = f) Find the compensated income: Y C = g) Find the compensating variation: CV = The following question is an application of an economic / mathematical model, but with a peculiar result. The student should be able to both identify what the model says will happen, and what aspects of the model are inappropriate and lead to the peculiar result. 2.2 In a competitive market, a firm has prices p = 2, w 1 = 1, w 2 = 4. After investing in some capital equipment, the firm has a constant marginal product of its variable input of MP 1 = 2. a) According to these assumptions, what will this firm do to maximize short-run profits? b) What assumption(s) is/are unreasonable in this problem, and what would really happen if the firm tried to do what you said in part (a)? Business Knowledge A relevant issue for any business is when it is worthwhile to stay in business or close up shop. The following question asks about that choice, as well as the decision about how much to produce (the firm s supply curve). It also checks for understanding on the meaning of the curves shown.

5 2.3 The graph below shows some short-run cost curves for a firm which is a price-taker in the output market. (a) On the graph, show the short-run supply curve for the firm. (b) Explain how we know the AC curve should be above the AVC curve. A business with market power makes trade-offs between selling less of a product at higher prices, and selling more at lower prices. Two places this idea is captured are price elasticity of demand (ε) and marginal revenue (MR). This problem uses those ideas and asks about the implications for what the firm should do.

6 2.4 A monopoly faces the demand function Q(p) = (3 p) 2. The firm has a marginal cost of zero in the short run. (a) Find the function for price elasticity of demand in terms of p. ε(p) = (b) Suppose the firm sets a price p = $2. a. What is the price elasticity of demand at that price? b. How much will the firm sell at that price? c. What is the marginal revenue at that price? d. Based on your answer to (ii), the firm would like to sell: a greater quantity the same quantity a smaller quantity Explain your answer. Social Responsibility Economists largely address social responsibility with the notions of efficiency, welfare, and surplus. One of the most basic ideas of welfare is that there are gains from trade. The first question is about gainsfrom-trade and consumer surplus on a personal level. 2.5 You enter a store to buy a drink (soda, coffee, milk ). Do you usually receive consumer surplus? Yes No Explain how you know. The second question addresses consumer surplus in an overall market, relating to the demand curves. It also asks about the meaning of a Pareto improvement, which requires that nobody even a monopolist--- be made worse off. 2.6 A monopoly faces the demand function Q(p) = 200 p. The firm has marginal cost of zero in the short run. Initially, they set the price at p = $100 but then, under government pressure, lower the price to p = $40. (a) How much is the gain in consumer surplus due to the price change? (b) Why can t we say the situation after the price change is a Pareto improvement over the situation before the price change? (You should be able to answer this with words no math is needed.) Learning Outcomes Specific to the Course Students who complete Economics 361 are expected to be able to use microeconomics as a means for evaluating alternative choices (e.g., policy choices; business and personal choices) and to have some understanding of microeconomics as a science (a discipline that helps us understand how people behave and how institutions work). The course will make use of functions (e.g., utility functions, cost functions, profit functions) and calculus (e.g., for characterizing optimizing choices in terms of marginal conditions).

7 The following list of core topics is covered. Instructors vary in the emphasis and depth with which they cover these core topics, and also in any additional topics they cover. 1. Consumer Choice: Indifference curves and maps. Budget constraints. Constrained maximization (determination of the chosen bundle from a utility function and a budget constraint, and the MRS = price-ratio marginal condition). Deriving a demand function. Comparative statics. Substitution and income effects. Normal and inferior goods. Elasticity. Consumer surplus. 2. The firm: Revenue, cost, and profit. The profit maximization assumption and characterization via the MR = MC condition. Production function, marginal product, MRTS. Cost function via cost minimization for given output. Total, average, and marginal cost curves. Returns to scale. Long run and short run. Price-taking ( competitive ) firm: P = MC. Derived demand for inputs. Comparative statics. 3. Competitive equilibrium: Market demand and supply functions as sums of individuals functions. Calculating equilibrium from demand and supply functions. Long run and short run. Comparative statics. 4. Welfare: Edgeworth box. Pareto efficiency, and characterization via the equalization of marginal rates. Efficiency of equilibrium and the importance of competitive conditions. Prices as signals for resource allocation. 5. Intertemporal choice: Present value of an asset and of a stream of returns and costs. Intertemporal interpretation of commodities, prices, etc., in the standard model. 6. Uncertainty: Risk aversion and risk premium. 7. Imperfect competition: Monopoly; welfare comparison of the monopoly and competitive outcomes. Cartels. Oligopoly: Cournot analysis (elementary game theory). Comparison of monopoly, oligopoly, competition. 8. Externalities: Public goods. Efficiency. Other externalities. The Coase analysis and its limitations.