About a year ago, I chanced to remark upon the state of Intermediate Micro within the hearing of my colleagues. It was remarkable, I said, that the nature of the course had not changed in half a century. What is more, the order in which topics were presented was mistaken and the exercises on a par with Vogon poetry, which I reproduce below for comparison:
“Oh freddled gruntbuggly,
Thy micturations are to me
As plurdled gabbleblotchits on a lurgid bee.
Groop, I implore thee, my foonting turlingdromes,
And hooptiously drangle me with crinkly bindlewurdles,
Or I will rend thee in the gobberwarts
With my blurglecruncheon, see if I don’t!”
The mistake was not to think these things, or even say them. It was to utter them within earshot of one’s colleagues. For this carelessness, my chair very kindly gave me the chance to put the world to rights. Thus trapped, I obliged. I begin next week. By the way, according to Alvin Roth, when an ancient like myself chooses to teach intermediate micro-economics it is a sure sign of senility.
What do I intend to do differently? First, re order the sequence of topics. Begin with monopoly, followed by imperfect competition, consumer theory, perfect competition, externalities and close with Coase.
Why monopoly first? Two reasons. First it involves single variable calculus rather than multivariable calculus and the lagrangean. Second, student enter the class thinking that firms `do things’ like set prices. The traditional sequence begins with a world where no one does anything. Undergraduates are not yet like the white queen, willing to believe 6 impossible things before breakfast.
But doesn’t one need preferences to do monopoly? Yes, but quasi-linear will suffice. Easy to communicate and easy to accept, upto a point. Someone will ask about budget constraints and one may remark that this is an excellent question whose answer will be discussed later in the course when we come to consumer theory. In this way consumer theory is set up to be an answer to a challenge that the students have identified.
What about producer theory? Covered under monopoly, avoiding needless duplication.
13 comments
August 22, 2014 at 10:11 am
Tobi
How will you explain cost-minimization though? I recall that the usual textbook will start with the assumption that perfect competition exists on the factor markets. Unless you want to touch on vertical integration as well, you will have to touch on perfect competition if I am not mistaken?
August 22, 2014 at 10:17 am
Laura Doval
Cournot and Walras once engaged in a long exchange over this same issue. In his book, Cournot followed the monopoly-duopoly-perfect competition order, and this is what he deemed more natural (start with monopoly, then add competition, then make each of the producers’ effect on the market what he called “inappreciable”); Walras thought the contrary, perfect competition first, and monopoly last. Unfortunately, the exchange is contained in the unpublished letters and papers of Leon Walras; I was lucky enough that I got the chance to see them once, but I am not sure of their availability.
August 22, 2014 at 10:23 am
rvohra
Dear Tobi:
Initially, the monopolist will be defined by a cost function that is given ex-cathedra so that one can focus on the interaction between seller and buyer (holding other things fixed). Subsequently, one can ask where does the cost function come from? An initial answer would be to take the price of inputs as fixed and have the monopolist choose the least cost mix to produce a given level of output. But, why should the input prices be fixed? What happens when they are not? Onto double marginalization and imperfect competition and eventually perfect competition.
rakesh
August 22, 2014 at 10:36 am
rvohra
Dear Laura
Drat! I should have remembered that. Thank you for the reminder. Walras’ correspondence were collected by Leon Jaffee and published by North Holland. Here is Walras to Cournot:
“….we have proceeded in opposite directions. You start from monopoly to arrive at indefinite competition. I thought I had to start from indefinite competition, which I consider to be the general case, too arrive at monopoly, which seems to be a special case. This way is more difficult, but I believe it to be more beautiful and more complete.”
Walras also observed: “Cournot and Gossen died unknown; Jevons died unsung.”
rakesh
August 22, 2014 at 10:54 am
Laura Doval
Dear Rakesh,
:) It makes me very happy that you knew about this (many people only remember Cournot for the “Cournot duopoly”, and forget he also worked on general equilibrium). And thanks for the pointer to the book; I will check out whether NU has it in the library.
August 22, 2014 at 11:28 am
rvohra
Dear Laura
Can’t take credit for it. Learnt about Cournot in Lionel Robbins’ class on the history of economic thought.
rakesh
August 22, 2014 at 11:47 am
Israel
Elmar Wolfstetter tried to do something like that with “Topics in Microeconomics”, I think
August 22, 2014 at 2:55 pm
rvohra
Dear Israel
Thank you for this pointer. I had only seen a `samizdat’ version of the auction portion some years ago.
rakesh
August 22, 2014 at 4:08 pm
richardhserlin
Like it, by and large, but, at least in the US, so few students take intermediate; 101 and 102 are the ones required for a large percentage of students — and crucially voters.
So, what do you think is best to teach them, for optimizing societal welfare, to make them smarter voters and decision makers for the most important issues, with the typical two required three credit semester courses to work with.
August 23, 2014 at 9:20 am
Nick Rowe
Hmmm. A proposal to reform teaching that actually makes a lot of sense!
Hmmm. But why *intermediate* micro? Why not *intro* micro? (It would mean postponing demand and supply until much later.)
August 24, 2014 at 9:27 am
rvohra
Dear Richard & Nick:
Intermediate is easier to tackle because its purpose, I think, is well defined. As the gateway to the economics major, it is clear what we want students to get out of it. In my mind, the execution is wanting. The difficulty with `reforming’ the intro micro course both of you mention arises from the lack of agreement on what purpose it is supposed to serve. At some Universities, this intro class also acts as a `warm up’ (waiting room would be more exact) for potential econ majors who have not yet had calculus. This confused mission is apparent in the make up of the intro class (btw which is also available in High Schools as AP economics).
Were I, foolishly, to be given carte blanche over the design such an intro course, I would use some combination of Landsburg’s `Armchair Economist’ and David Friedman’s `Hidden Order’. Each makes surprising claims about how to arrange social affairs that could be used to draw students in to analyzing exactly how the assumptions made lead to such claims and the consequences of relaxing those assumptions. All of these would be bundled together to stress a common theme: to think about social arrangements we need first to think about preferences, and deduce as best as possible how agents will respond to those arrangements given preferences.
rakesh
August 26, 2014 at 8:35 am
Luca
As you know, I mostly agree that starting with firms rather than consumers may be more natural; yet, let me make an observation on your plan. In intro classes, students learn that the central item in economics is the supply=demand equilibrium condition. In intermediate, I like to suggest that you will now learn where supply and demand come from. So, I like talking about market equilibrium only after having separately treated what goes into constructing market demand and market supply. This, however, makes monopoly pretty hard to deal with as it needs the existence of a black box demand function.
Now a question. Do you plan to cover any “modern” micro? things like game theory, information economics, and the like could warm up the appetite for other more advanced courses within a major. The last time I taught intermediate micro, I took about 1/3 of the time to cover these items, and found the students enjoyed going beyond perfectly competitive markets that way.
Finally, a request: would you be so kind as to write a textbook while you are teaching this class? The rest of us would be very happy to free ride.
August 26, 2014 at 1:36 pm
rvohra
Dear Luca:
With quasi-linear preferences (and some fudging) one can motivate the demand curve. Every buyer has a reservation value for one unit of the good, reservation values differ between buyers and outside option is zero for all buyers. The demand curve then summarizes how many people will enjoy non-negative surplus at price p. Its not hard to convince the listener that setting the outside option to zero is a convenience of no significance. The fudge is ignoring the `indivisibility’ in the good. Strictly speaking one should find a profit maximizing price that generates an integral demand for the good. For the persnickety in the class, one points out two things. First, we don’t care about the profit maximizing price of quantity itself, only how these things change as we change various parameters of the problem. Second, single peakedness of the profit function means that the optimal integral quantity is always the round up or round down of the optimal fractional quantity, so the comparative statics will go through.
Re game theory, it will make an appearance in three places. First `informally’ in the monopoly case when discussing double marginalization. The traditional set up gives the upstream firm the power to set prices. One can vary this to allow the downstream firm to either set the wholesale price or commit to a fixed markup. The size of total profits and their distribution change dramatically. This will be used to emphasize the importance of commitment. BTW, one can tie this discussion to Amazon vs.Hachette vs Apple and makes for the segue into imperfect competition in which game theory is explicitly introduced.
I plan to return to these themes after perfect competition when discussing Coase, externalities and public goods.
Incomplete information, I’m hesitant on because students have not yet been exposed to probability.
As to textbook, are people still writing them? I plan to make the material (after the first run through) available in Latex for anyone who wants to adapt/modify as they see fit following Preston McAfee’s model.
rakesh