Firm Level Economics: Markets and Allocations

About this course: In this class, we will derive equilibrium outcomes across a variety of market structures. We will begin by understanding equilibrium under a market structure called Perfect Competition, a benchmark construction. Economists have tools to measure the efficiency of market outcomes. We next consider the polar extreme of a competitive market: a monopoly market. We will determine the monopoly equilibrium price and quantity and efficiency properties. Much economic activity takes place in markets with just a handful of very large producers. To understand equilibrium in these oligopoly markets requires more careful attention to strategic interdependence. To capture this interdependence, we consider collusive arrangements among a small number of rivals as well as the use of simple game theoretic techniques to model equilibrium. Market Failure describes situations where markets fail to find the efficient outcome. Information asymmetries are one fertile form of market failure. Another form of market failure occurs when externalities are present. We will examine one key externality, pollution, and construct a policy prescription to mitigate the negative efficiency impacts of this externality. Upon successful completion of this course, you will be able to: • Explain how different market structures result in different resource allocations. • Model the impact of external shocks to a particular market structure and demonstrate the new equilibrium price and quantity after the impact of this external shock has played out. • Evaluate the efficiency of an equilibrium. Different market structures produce different levels of efficiency. • Explain when and why the government might intervene with regulatory authority or antitrust litigation to lessen inefficiencies in some markets. • Describe how information problems can cause inefficient outcomes. • Understand externalities and consider optimal government response to these market failures. This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

Earn credit toward a master's degree This course is part of the fully-online accredited Master of Business Administration (iMBA) from University of Illinois at Urbana-Champaign. Learn More Created by:  University of Illinois at Urbana-Champaign

• Taught by:  Larry DeBrock, Dean Emeritus and Professor of Finance and Professor of Economics

  University of Illinois, Urbana-Champaign College of Business Department of Business Administration

Basic Info Course 2 of 7 in the Managerial Economics and Business Analysis Specialization Commitment 4 weeks of study, 3-5 hours/week Language English How To Pass Pass all graded assignments to complete the course. User Ratings 4.8 stars Average User Rating 4.8See what learners said Coursework

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Syllabus


WEEK 1


Course Orientation
You will become familiar with the course, your classmates, and our learning environment. The orientation will also help you obtain the technical skills required for the course.


1 video, 5 readings, 1 practice quiz expand

1. Video: Welcome to Firm Level Economics: Markets and Allocations!
2. Reading: Syllabus
3. Reading: About the Discussion Forums
4. Reading: Glossary
5. Practice Quiz: Orientation Quiz
6. Reading: Updating Your Profile
7. Discussion Prompt: Getting to Know Your Classmates
8. Reading: Social Media

Module 1: Perfect Competition



This module introduces the concept of a perfectly competitive market. It is a benchmark construction, but it accurately models many markets in our economy. We will understand equilibrium outcomes in both the short run and the long run. We will understand how to analyze shocks to these equilibria.


7 videos, 3 readings, 2 practice quizzes expand

1. Reading: Module 1 Overview
2. Reading: Module 1 Readings
3. Video: 1-1.1. Markets and Allocations
4. Video: 1-1.2. Market Structure
5. Video: 1-1.3. Perfect Competition in Reality - as Told by an Economist
6. Video: 1-1.4. Firm Supply Curve in a Perfectly Competitive Industry
7. Practice Quiz: Lesson 1-1 Practice Quiz
8. Video: 1-2.1. Build Short Run Equilibrium Framework
9. Video: 1-2.2. Long Run Equilibrium
10. Video: 1-2.3. External Shock and Movement to New Equilibrium
11. Practice Quiz: Lesson 1-2 Practice Quiz
12. Reading: Module 1 Peer Review Explanation

Graded: Module 1 Peer Review Assignment
Graded: Module 1 Quiz

WEEK 2


Module 2: Monopoly Markets and Efficiency



Analysts can predict equilibrium outcomes with some degree of certainty. We want to construct a measure of efficiency that will allow us to evaluate the attractiveness of these equilibrium market outcomes. After using this metric to consider the efficiency of the competitive market, we will introduce a different market structure, monopoly, and use our efficiency metric to evaluate the equilibrium resource allocation under monopoly.


7 videos, 3 readings, 2 practice quizzes expand

1. Reading: Module 2 Overview
2. Reading: Module 2 Readings
3. Video: 2-1.1. Consumer Surplus
4. Video: 2-1.2. Producer Surplus
5. Video: 2-1.3. The Benevolent Dictator
6. Practice Quiz: Lesson 2-1 Practice Quiz
7. Video: 2-2.1. Monopoly Equilibrium
8. Video: 2-2.2. Marginal Revenue Curve in Monopoly
9. Video: 2-2.3. Social Costs of Monopoly
10. Video: 2-2.4. Governments Intervene in Monopoly
11. Practice Quiz: Lesson 2-2 Practice Quiz
12. Reading: Module 2 Peer Review Explanation

Graded: Module 2 Peer Review Assignment
Graded: Module 2 Quiz

WEEK 3


Module 3: Oligopoly and Game Theory



Perfectly competitive markets have many sellers. Monopoly has one seller. But much economic activity takes place in markets with just a handful of very large producers. These are called oligopoly markets. We will look at collusive arrangements among a small number of rivals, and then will use simple game theoretic techniques to model equilibrium.


7 videos, 3 readings, 2 practice quizzes expand

1. Reading: Module 3 Overview
2. Reading: Module 3 Readings
3. Video: 3-1.1. Introducing Oligopoly
4. Video: 3-1.2. Collusion
5. Video: 3-1.3. Efficiency, Social Costs, and Antitrust Enforcement
6. Practice Quiz: Lesson 3-1 Practice Quiz
7. Video: 3-2.1. Simple Game Theory
8. Video: 3-2.2. Computer Chess
9. Video: 3-2.3. The Prisoner's Dilemma
10. Video: 3-2.4. The Nash Equilibrium to a Non-Cooperative Game
11. Practice Quiz: Lesson 3-2 Practice Quiz
12. Reading: Module 3 Peer Review Explanation

Graded: Module 3 Peer Review Assignment
Graded: Module 3 Quiz

WEEK 4


Module 4: Market Failures



Sometimes even markets that appear to be capable of great efficiency in resource allocation, such as the perfectly competitive market, can fall short of efficiency. Economists call this market failure. In this module, we will consider information issues and the impact on efficiency. We will also introduce externalities (spillovers) such as pollution and model these impacts.


6 videos, 3 readings, 2 practice quizzes expand

1. Reading: Module 4 Overview
2. Reading: Module 4 Readings
3. Video: 4-1.1. The Winner's Curse
4. Video: 4-1.2. Information Asymmetries
5. Video: 4-1.3. Adverse Selection: Unraveling Insurance Markets
6. Practice Quiz: Lesson 4-1 Practice Quiz
7. Video: 4-2.1. Positive and Negative Externalities
8. Video: 4-2.2. Measure the Gains from Positive Externality
9. Video: 4-2.3. Measure the Costs Caused by Negative Externality
10. Practice Quiz: Lesson 4-2 Practice Quiz
11. Reading: Module 4 Peer Review Explanation

Graded: Module 4 Peer Review Assignment
Graded: Module 4 Quiz