316 courses ePortfolio Forums Blog FAQ

This course has recently been updated.  To view the archived version of the course, please go here.

Econometrics

Purpose of Course  showclose

This course is designed to provide you with a simple and straightforward introduction to econometrics.  Econometrics is an application of statistical procedures to the testing of hypotheses about economic relationships and to the estimation of parameters.  Regression analysis is the primary procedure commonly used by researchers and managers whether their employments are within the goods or the resources market and/or within the agriculture, the manufacturing, the services, or the information sectors of an economy.

Completion of this course in econometrics will help you progress from a student of economics to a practitioner of economics.  By completing this course, you will gain an overview of econometrics, develop your ability to think like an economist, hone your skills building and testing models of consumer and producer behavior, and synthesize the results you find through analyses of data pertaining to market-based economic systems.  In essence, professional economists conduct studies that combine and project their expertise both in statistical procedures and analysis and in economic concepts and relationships.

There are two major benefits to a study of econometrics: one is that it facilitates communication between econometricians and users of their work; the other is that it helps individuals to develop perspectives on econometric work and to make a critical evaluation of the work.  Experience with econometrics and knowledge of the potential problems are essential for developing judgments about a study.  For example, you could find yourself assessing studies that conclude the price of a gallon of gasoline has little influence on how much of it a driver purchases and findings that affirm the cost of producing a gallon of gasoline has little bearing on the current price of a gallon of gasoline you are pumping into your vehicle.

 

Course Information  showclose

Course Designers:  Steve Hoagland, Jubeet Kaur Singh, Joy Zhao, and Hristina Toshkova

Primary Resources: This course comprises a range of different free, online materials that highlight quantifiable economic concepts and relationships.  However, the primary study material for this course includes readings, lectures, assessments, and activities from the following resources:
You will be using Hansen’s Econometrics throughout the course.  It may be useful to click on the link above, select “Current Manuscript (2012)” to download the PDF, and save this to your computer for easy access.
 
Requirements for Completion: In order to successfully complete this course, you will need to work through each unit and the materials assigned in the order they are presented.  Please note that each unit in this course provides a comprehensive discussion of the topic along with examples.  In order to fully understand the material, it is essential to practice the algebra and use statistical tables. You will also need to complete:
  • Sub-subunit 1.2.5 Assessment
  • Unit 1 Activity
  • Unit 2 Activity
  • Sub-subunit 3.1.1 Activity
  • Sub-subunit 3.2.4 Activity
  • Sub-subunit 3.2.5 Assessment
  • Unit 3 Activity
  • Sub-subunit 4.3.4 Activity
  • Unit 4 Activity
  • Sub-subunit 5.1.6 Assessment
  • Sub-subunit 5.1.7 Activity
  • Sub-subunit 5.2.7 Assessment
  • Unit 5 Activity
  • Unit 6 Assessment
  • Unit 6 Activity
  • The Final Exam
Note that you will only receive an official grade on your final exam.  However, in order to adequately prepare for this exam, you will need to work through the assessments listed above as well as each resource for the course.
 
In order to pass the course, you will need to earn a 70% or higher on the final exam.  Your score on the exam will be tabulated as soon as you complete it.  If you do not pass the exam, you may take it again.
 
Time Commitment: This course should take you approximately 140.5 hours to complete.  Each unit includes a time advisory that lists the amount of time you are expected to spend on each subunit.  The running time for the video lectures can be found after you click on the link that takes you to the lecture.  Please proceed through the material, paying attention to the time advisories.  You can look at the time suggested in order to plan out your week for study and make your schedule accordingly.  It may be useful to take these time advisories into account and to determine how much time you have available over the next few weeks to complete each unit, and then to set goals for yourself.  For example, Unit 1 should take you 28 hours.  Perhaps you can sit down with your calendar and decide to complete the introduction to Unit 1 (a total of 5.75 hours) on Monday and Tuesday nights; the introduction to subunit 1.1 (a total of 3.5 hours) on Wednesday night; sub-subunits 1.1.1 through 1.1.4 (a total of 3.5 hours) on Thursday night; etc.
 
Tips/Suggestions: If you wish to complete the course within a semester’s worth of time (i.e. 15 weeks), it is advisable that you pursue only one unit at a time, and then review your progress against the set of learning outcomes for each unit a few times before progressing to the next unit. 
 
Remember that an understanding of econometrics allows you to apply common methods of research to real-world problems and to find connections between applications, practice, and theory.  This course presents theory and relates theory to numerous examples and exercises.  The examples and exercises make use of data sets that can be analyzed through statistical software packages.  You should download the data sets, work them out, and then compare your answers against the answer key.
 
This course also requires the use of statistical tables in order to understand and interpret important results.  Please make sure that you can read those tables before moving on to the next unit.  You will also need to maintain an awareness of your familiarity with economic concepts and theory, as they provide the rationale by which to pursue and conduct statistical analyses.  By definition, statistics amount to an estimation of what we expect to find in the larger population.  If we had the resources to obtain data from the entire population, then there would be little or no need to calculate statistics and use them in our analyses.  Basically, you will be learning statistics and economics as you progress in this course, and you might encounter challenges along the way in one or both of those areas.  Be sure to consider the advice made available to you along the path toward mastery. 
 
It is a good practice to work through the algebra in order to understand the theory and apply the theory to real-world problems.  Also, make sure to take comprehensive notes, recording any equations, formulas, concepts, definitions, or results as well as their relationship to specific topics.  These notes will serve as a useful review as you study for your final exam.  Remember to keep a calculator handy while completing this course. 

Learning Outcomes  showclose

Upon successful completion of this course, the student will be able to:
  • Construct, test, and analyze econometric models, using variables and relationships commonly found in studies of economic theory.
  • Collect, organize, and analyze economic data, and interpret results from statistical analyses.
  • Identify the desirable properties of estimators.
  • Identify key classical assumptions in the field of econometrics, explain their significance, and describe the effects that violations of the classical assumptions can have.
  • Use the least squares method in evaluating the relationship of one explanatory variable to the dependent variable and the relationships of multiple explanatory variables to the dependent variable.
  • Interpret key statistics and diagnostics typically generated by software.

Course Requirements  showclose

In order to take this course, students must:

√    Have access to a computer

√    Have continuous broadband Internet access

√    Have the ability/permission to install plug-ins (e.g. Adobe Reader or Flash) and software

√    Have the ability to download and save files and documents to a computer

√    Have the ability to open Microsoft files and documents (.doc, .ppt, .xls, etc.)

√    Have competency in the English language 

√    Have read the Saylor Student Handbook.

√    Have completed the following courses from the “Core Program” of the Economics discipline: ECON103, ECON104, and ECON101 or ECON102.

Unit Outline show close


Expand All Resources Collapse All Resources
  • Unit 1: Review of Microeconomics  

    This unit summarizes the principles of microeconomics, and it provides the conceptual foundation for this course and the application of statistical procedures.  It is one among several units that provides the theoretical framework with which you will conduct regression analysis.  As you pursue such analytics, it is important to be mindful of the presumption of causality residing behind regression analysis.  The relationships set forth by economic theory and through the principles of microeconomics represent the cause and effect foundation on which to engage econometric procedures, to construct models, and to test whether data in hand support economic theory.  If the results from analyses are inadequate in terms of their support, theory remains intact and the data become suspect.  In sum, this unit introduces econometrics in terms of microeconomic theory for the purposes of conducting marginal analysis and informing optimization decisions.

    Unit 1 Time Advisory   show close
    Unit 1 Learning Outcomes   show close
    • Lecture: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 01”

      Link: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 01” (YouTube)

      Instructions: Please click on the link above, and view the entire lecture.  This lecture covers Unit 1 and provides an introduction to topics under study in managerial economics.  The study adds a quantitative and analytical approach to microeconomics. 
       
      Watching this lecture and pausing to take notes takes approximately 1.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Reading: Boise State University: R. Larry Reynolds’ Basic Microeconomics: “Microeconomics Framework”

      Link: Boise State University: R. Larry Reynolds’ Basic Microeconomics: “Microeconomics Framework” (PDF)
       
      Instructions: When you click on the link above, you will be directed to the handouts section of R. Larry Reynolds’ Basic Microeconomics.  Click on the “Microeconomics Framework” link to download the PDF and study this handout.  This reading covers the topics outlined in subunits 1.1–1.3 and provides a foundation for a deeper study of forthcoming microeconomic and econometric topics.
       
      Studying this resource should take approximately 15 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Introduction”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Introduction” (PowerPoint)
       
      Instructions: Please click on the link above to access the PowerPoint section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link titled “Introduction” to download the PowerPoint presentation.  Study this presentation (39 slides), which provides a foundation for a deeper study of forthcoming microeconomic and econometric topics.  This reading covers the topics outlined in subunits 1.1–1.3.
       
      Studying this resource should take approximately 2 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Markets”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Markets” (PowerPoint)
       
      Instructions: Please click on the link above to access the PowerPoint section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link titled “Markets” to download this PowerPoint presentation.  Study the entire presentation (43 slides in total) to learn about markets and market structures, the behaviors of and the exchanges between consumers and businesses, and a set of key equations and rules for optimization.  This resource will provide a foundation for a deeper study of forthcoming microeconomic and econometric topics.  This reading covers the topics outlined in subunits 1.1–1.3.
       
      Studying this resource should take approximately 2 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 1.1 Managers, Markets, and Outcomes  
  • 1.1.1 Explicit, Implicit, and Economic Costs  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Introduction (Section 1)”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Introduction (Section 1)” (PDF)
       
      Instructions: When you click on the link above, you will be directed to R. Larry Reynolds’ Intermediate Microeconomics.  Select the link for “Introduction (Section 1)” to download the PDF.  Please read this entire section to learn about some key differences in how accountants and economists view costs and to gain insights into conducting marginal analysis and identifying an optimal output level.  This reading covers the topics outlined in sub-subunit 1.1.1 and subunit 1.3.
       
      Studying this reading should take approximately 15 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 1.1.2 Accounting and Economic Profit  

    Note: This topic is covered by the PowerPoint presentation assigned under the Unit 1 introduction.  In particular, focus on page 1, which addresses opportunity costs and suggests that they are the main difference between the two forms of profit.  Take approximately 15 minutes to review this material.

    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Chapter 1”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Chapter 1” (PDF)
       
      Instructions: When you click on the link above, you will be directed to R. Larry Reynolds’ Intermediate Microeconomics.  Select the link to download the PDF for “Chapter 1,” and read this entire chapter (22 pages).  This reading will help you to identify various types and levels of profit and to compare and contrast markets in which firms operate using a set of structural characteristics such as levels of profit, control over prices, and type of products.  This reading covers the topics outlined in sub-subunits 1.1.2 and 1.1.4.
       
      Studying this reading should take approximately 1 hour to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 1.1.3 Present Value  
    • Reading: Boise State University: R. Larry Reynolds’ Alternative Microeconomics: “Chapter 1: Nature of Economics”

      Link: Boise State University: R. Larry Reynolds’ Alternative Microeconomics: “Chapter 1: Nature of Economics” (PDF)
       
      Instructions: When you click on the link above, you will be directed to R. Larry Reynolds’ Alternative Microeconomics.  Please select the link to “Chapter 1: Nature of Economics” to download the PDF, and read the entire chapter (11 pages).  As you read, focus on the five basic allocation questions that appear near the top of page 2.  In particular, question 4 will help you to gain perspective on the temporal nature of costs and benefits and the need to convert them into their present values. 
       
      Studying this reading should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 1.1.4 Markets: Structures, Product Differentiation, and Power  

    Note: This topic is also covered by the PDF document assigned in sub-subunit 1.1.2.  In particular, review pages 16 and 17, which address various basic aspects of competition, allocations, and markets.  Take approximately 15 minutes to review this material.

    • Lecture: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Flash Modules and QuickTime Movies”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Flash Modules and QuickTime Movies” (Adobe Flash and QuickTime)
       
      Instructions: Click on the link above to access the Flash and QuickTime section of R. Larry Reynolds’ Intermediate Microeconomics.  Under the “Flash Modules” section, click on the links and view the videos for the following four lectures:

      • “Change in Demand/Quantity Demand”
      • “Change in Demand and Effect on Price”
      • “Shift of Demand,” “Shift of Supply”
      • “Pure Competition Flash Lecture”
      Under the “QuickTime Movies” section, view “Demand Model.”  The information in these videos will help you learn about the basic types of change, the dynamics behind initial and subsequent market level adjustments, and the effects of changes in price and other factors from those adjustments – all of which are essential to the work of managers, economists, and analysts.  These lectures cover the topics outlined in sub-subunits 1.1.4 and 1.2.1 through 1.2.5.
       
      Studying these lectures should take approximately 1.25 hours to complete. 
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 1.2 Markets: Demand, Supply, & Equilibrium  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Demand and Supply”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Demand and Supply” (PowerPoint)
       
      Instructions: Please click on the link above to access the PowerPoint section of R. Larry Reynolds’ Intermediate Microeconomics.  Select the link for “Demand and Supply” to download the PowerPoint presentation.  Study this entire presentation (40 slides in total).  This set of slides will expand on market supply and demand basics, introduce the laws of demand and supply, and help you learn about related goods.  This reading also covers the topics outlined in sub-subunits 1.2.1 through 1.2.5.
       
      Studying this resource should take approximately 2 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Market Review (Section 2)” and “Demand and Supply Review”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Market Review (Section 2)” (PDF) and “Demand and Supply Review” (PDF)
       
      Instructions: Please click on the first link above to access R. Larry Reynolds’ Intermediate Microeconomics, and select the link for “Market Review (Section 2)” to download the PDF.  Study the entire section (7 pages).  This reading will help you learn about the determinants of demand and of supply, consider these determinants as curve shifters, and observe various dynamics that can lead to changes in equilibrium price and quantity.  This reading highlights the topics outlined in sub-subunits 1.2.1 through 1.2.5.
       
      Then, click on the second link above to access the handouts section of Intermediate Microeconomics, and select the link titled “Demand and Supply Review” to download this handout.  Study this brief review (5 pages) on the topic of demand and supply.
       
      Studying the reading and handout should take approximately 1 hour to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 1.2.1 Determinants of Demand  

    Note: This topic is introduced in part by the PDF and PowerPoint presentation assigned below subunit 1.2.  In particular, review slides 13–19, which address some factors that influence the consumer’s willingness and ability to acquire a good at any given price and highlight the difference between a change in quantity demanded and a change in demand.  Spend approximately 15 minutes on this review.

    • Lecture: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 07”

      Link: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 07” (YouTube)

      Instructions: Please click on the link above, and view the entire lecture.  There are a known set of factors that change causing a change in demand.  When the demand curve shifts rightward, the quantity demanded is higher at any given price and demand is said to increase.  When it shifts leftward, the quantity demanded is lower and demand is said to decrease.
       
      Watching this lecture and pausing to take notes should take approximately 1.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 1.2.2 Determinants of Supply  

    Note: This topic is covered in part by the PDF and PowerPoint presentation assigned below the introduction of subunit 1.2.  In particular, review slides 25–28, which address some factors that influence the producer’s willingness and ability to supply a good at any given price and highlight the difference between a change in quantity supplied and a change in supply.  Spend approximately 15 minutes on this review.

    • Lecture: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 08”

      Link: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 08” (YouTube)

      Instructions: Please click on the link above, and view this entire lecture.  This lecture covers sub-subunits 1.2.2 and 1.2.3.  Keep in mind there are a number of factors that can shift a demand or supply curve and the price of the good is not one of them.  In other words, the change in the price of a good does not increase or decrease the demand for it.
       
      Watching this lecture and pausing to take notes should take approximately 45 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 1.2.3 Shifts in Curves versus Movement along Curves  

    Note: This topic is introduced in part by the PowerPoint presentation assigned below subunit 1.2.  Review slides 7, 12, 20, and 24–27, which compare and contrast key differences in basic economic terminology and provide a summary of various dynamics within a market.  Spend approximately 15 minutes on this review.

  • 1.2.4 Income Changes and Good Types  

    Note: This topic is covered by the PDF document assigned below subunit 1.2.  Review pages 3 and 4, which attend to characteristics that differentiate among normal, inferior, and superior goods.  Spend approximately 15 minutes on this review.

  • 1.2.5 Quantities as a Function of Price  
    • Assessment: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Demand, Supply, and Equilibrium”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Demand, Supply, and Equilibrium” (PDF)
       
      Instructions: When you click on the link above, you will be directed to the handouts section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link for “Demand, Supply, and Equilibrium” under the “Problems and Answer Sheets” heading.  Please complete the “Demand, Supply, and Equilibrium” exercise, following the directions on the PDF.  After you have completed the exercise, click on the “(Answer Sheet)” link on the handouts webpage; this link appears directly below the link for the exercise.  Your participation in this assessment allows for a preliminary measurement on your mastery of learning outcomes for Unit 1, especially those pertaining to topics covered in subunits 1.1 through sub-subunit 1.2.5, to reflect on your initial progress and current learning experience as well as to identify areas in need of additional depth and review.
       
      This assessment should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

  • 1.3 Marginal Analysis and Optimization  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Calculus Review”

      Link:Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Calculus Review” (PDF)
       
      Instructions: When you click on the link above, you will be directed to the handouts section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link to “Calculus Review” to download the PDF.  Study this entire handout (8 pages).  This handout will help you learn how to conduct marginal analysis through functions, tables, and graphs as well as to apply calculus to economic data and key relationships.  This reading covers the topics outlined in sub-subunits 1.3.1 through 1.3.4.
       
      Studying this reading should take approximately 1 hour to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Profit Maximization”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Profit Maximization” (PowerPoint)
       
      Instructions: Please click on the link above to access the PowerPoint section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link titled “Profit Maximization” to download the PowerPoint presentation.  Study this entire presentation (2 slides) to learn the essentials behind the identification of the profit maximizing output level, the determination of a price corresponding with that output level, and an introduction to pricing under a purely competitive market structure situation.  This reading covers the topics outlined in sub-subunits 1.3.2–1.3.4 and subunit 6.1.
       
      Studying this resource should take approximately 15 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 1.3.1 Marginal and Net Benefits  

    Note: This topic is covered in the PDF document assigned below subunit 1.3.  In particular, review sections II.A. and VI A-C, which highlight differences and margins over totals.  Take approximately 15 minutes to review this material.

  • 1.3.2 Total and Marginal Revenues  

    Note: This topic is covered by the PDF assigned below subunit 1.3 and the PowerPoint assigned below sub-subunit 1.3.1.  In the PowerPoint presentation, review the first slide.  Take approximately 15 minutes to review this material.

  • 1.3.3 Total and Marginal Costs  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Production”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Production” (PDF)
       
      Instructions: When you click on the link above, you will be directed to R. Larry Reynolds’ Intermediate Microeconomics.  Select the link for “Production” to download the PDF.  Read this entire section (16 pages), and focus on learning the origins of costs, the types of cost functions, and the steps required to calculate total and marginal costs.  The information in this reading covers the topics outlined in sub-subunit 1.3.3 and Unit 5.
       
      Studying this reading should take approximately 1.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 1.3.4 Profit Maximization  

    Note: This topic is covered by the PDF and PowerPoint assigned below subunit 1.3.  In particular, review pages 5–8 in the PDF document and both slides in the PowerPoint presentation, which addresses calculating marginal costs and marginal revenues and the rule equating them.  Take approximately 15 minutes to review this material.

  • Unit 1 Discussion Board  
    • Activity: The Saylor Foundation’s “ECON203: Unit 1 Discussion Questions”

      Link: The Saylor Foundation’s “ECON203: Unit 1 Discussion Questions” (HTML)
       
      Instructions: After reviewing the unit materials, please post and respond to the following topics on the course discussion board.  Feel free to start your own related posts and respond to other students’ postings as well.

      1. Explain the difference between a change in quantity demanded and a change in demand.
      2. In what ways do economists view costs in a manner that is different than accountants?
      3. What steps are involved in setting a price for a good that maximizes profit?
       
      Posting and responding on the discussion board should take approximately 5 hours to complete.

  • Unit 2: Statistics, Regression Analysis, and Econometrics  

    This unit will provide you with an overview of econometrics, as we turn attention momentarily away from the content of economics toward the analytic methods employed in converting economic data into information.  After a brief refresher in statistics and probabilities, Unit 2 will turn attention toward an extensive coverage of regression analysis and a set of assumptions underlying that statistical procedure. 
     
    A key assumption in statistical analysis or econometrics is that a sample of data is drawn from a population considered normal in its distribution, which means its shape resembles a bell curve, such that each observation or record drawn has the same probability of selection from that population.  Holding an interest in how well the data drawn from the population describe the population, the analyst working with the sample of data can employ a variety of diagnostics to explore whether the sample exhibits characteristics that violate the set of underlying assumptions.  Because econometrics, as a method used in statistical analysis, also deals with generalizations to a population and the nature of probable relationships between (economic) variables, we have to consider some major characteristics such as the expected value, variance, covariance, correlation, skewness, and kurtosis.  These characteristics can reveal the extent to which a sample set of data portrays the larger population.
     
    It is beneficial to remember that statistics can provide a reasonably good estimate of what we expect to find in a population, at an expense considerably lower than canvassing the entire population.  Data collection and analyses are expensive activities and researchers need to exercise care in how they handle data and analysis affirming their actions and data comply with several key assumptions. 
     
    A large portion of this course is primarily concerned with linear regression functions – that is, regressions are linear in the parameters whether or not they are linear in the variables.  The latter part of this unit introduces some fundamental principles of regression analysis and informs you how to estimate the parameters of the two-variable linear regression model.  We will also learn how the estimated model can be used for the purpose of drawing inferences about the true population regression model.  You will then consider multiple regression models, which take the form of having one dependent variable and two or more independent or explanatory variables.  Finally, we will learn how qualitative variables, or dummy variables, taking values of 1 and 0, can be introduced into regression models alongside quantitative variables.

    Unit 2 Time Advisory   show close
    Unit 2 Learning Outcomes   show close
  • 2.1 What Is Econometrics?  
    • Reading: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapter 1”

      Link: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapter 1” (PDF)
       
      Instructions: When you click on the link above, you will be taken to Bruce E. Hansen’s Econometrics.  Click on the link for “Current Manuscript (2012)” to download the PDF.  It may be useful to save this manuscript to your desktop as we will be referring to this text often for this course.  Read Chapter 1 on pages 1–7 for a definition and understanding of the concept of econometrics.
       
      Studying this reading should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 2.2 Random Variables  
    • Reading: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Appendix B.2 Random Variables”

      Link: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Appendix B.2 Random Variables” (PDF)
       
      Instructions: If you have not already done so, click on the link above and then select “Current Manuscript (2012)” on the webpage to download Bruce E. Hansen’s Econometrics.  As you will be reading and reviewing several parts of that manuscript in Unit 2, you will need to download and save the entire book.  In addition, some chapters will be referred to several times, because these chapters are broader and deeper relative to other chapters.  Please read Appendix B.2 in its entirety.  This reading prompts thoughts about the choice of a variable (for instance, an annual salary from a full-time job) to represent a larger construct (for instance, taxable income) and the range of numeric values (for instance, zero to positive infinity) a variable can take.
       
      Studying this resource should take approximately 15 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 2.3 Probability Distributions  
  • 2.4 Estimation  
    • Reading: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapters 2, 7, and 12”

      Link: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapters 2, 7, and 12” (PDF)
       
      Instructions: Please study Chapters 2, 7, and 12.  In terms of gaining the most out of the forthcoming coverage of specific statistical procedures such as regression analysis, a current focus on what makes estimators desirable and what makes them best will help ensure the fullest and appropriate use of analytic procedures and the methods using them.  This reading covers the topics outlined in sub-subunits 2.4.1 through 2.4.3.
       
      Studying this topic should take approximately 3.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 2.4.1 Desirable Properties of Estimators  

    Note: This topic is covered by the reading assigned below subunit 2.4.  One of the points to remember is the desirability of calculating a line or slope estimate that minimizes the sum of squares.  Other points will become apparent from your efforts in sub-subunit 2.4.2.

  • 2.4.2 Best Linear Unbiased Estimators  

    Note: This topic is covered by the reading assigned below subunit 2.4 as well the video lecture below.  Each word of the title for sub-subunit 2.4.2 carries importance; watch for the meanings of best, linear, and bias as they pertain to estimators, and be sure to capture the essence of the acronym BLUE.

    • Lecture: YouTube: University of Oregon: Mark Thoma’s “Econometrics Winter 2009 – Lecture 1”

      Link: YouTube: University of Oregon: Mark Thoma’s “Economics Winter 2009 – Lecture 1” (YouTube)
       
      Instructions: Please click on the link above, and view this entire lecture.  This lecture also covers sub-subunits 2.4.3 and 2.5.1.  After viewing this lecture, you will be able to define BLUE and relate it to the contents of upcoming subunits.  In the world of econometrics, analysts know and are able to effectively communicate the connection ordinary least squares and BLUE.
       
      Watching this lecture and pausing to take notes should take approximately 2 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 2.4.3 Estimation Methods  
  • 2.5 Linear Regression Models  
    • Reading: University of Notre Dame: Richard Williams’ “Overview”

      Link: University of Notre Dame: Richard Williams’ “Overview” (PDF)
       
      Instructions: When you click on the link above, you will be directed to Richard Williams’ website for his statistics course.  Please scroll your mouse down about a third of the way, and then click on the link titled “Overview” to download the lecture notes.  This reading provides key information about regression models that goes beyond the presence of a dependent variable, an independent variable, the influence of the latter variable on the former variable, and the intercept or constant term.  In this section, you will gain additional familiarity and skills in applying terms such as variance, covariance, and least squares.  Study these lecture notes (5 pages) for an overview of linear regression models. 
       
      Studying this reading should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 2.5.1 Equations: Intercepts and Slopes  

    Note: This topic is covered by the resources assigned below subunit 2.5, prompting you to focus additional attention on intercepts and slopes as they relate to an equation summarizing the results from regression analysis.

  • 2.5.2 The Simple Regression Model  

    This subunit introduces the least squares criterion of goodness of fit and demonstrates how it can be used to develop expressions for the coefficients that quantify the relationship when a dependent variable is assumed to be determined by one explanatory variable.  This subunit will also demonstrate how to interpret the coefficients when the variables are measured in natural units. It concludes by introducing R2, a second criterion of goodness of fit, and showing how R2 is related to both the least squares criterion and the correlation between the fitted and actual values of the dependent variable.

    • Reading: Pennsylvania State University: Herman J. Bierens’ “The Two Variable Linear Regression Model”

      Link: Pennsylvania State University: Herman J. Bierens’ “The Two Variable Linear Regression Model” (PDF)
       
      Instructions: When you click on the link above, you will be directed to Herman J. Bierens’ “Lecture Notes” webpage.  Under the “Undergraduate Econometrics” section, select the link titled “The Two Variable Linear Regression Model” to download the PDF.  Read the entire document (29 pages), focusing on pages 10–13.  This portion of the reading will expand on basics from statistics and will introduce you to a key component within regression analysis, which is the primary statistical procedure employed in the field of econometrics and advanced studies of microeconomics.  In essence, this resource draws attention to the degree of accuracy by which analysts can make claims and draw conclusions from statistical procedures.
       
      Studying this document should take approximately 1.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 2.5.3 Fitting Curves  

    Note: This topic is covered by the reading assigned below subunit 2.5.  This reading focuses your attention on finding a straight line through a scatter plot that can represent the relationship or association between variables.

  • 2.5.4 Dervation of Least Squares  

    Note: This topic is covered by the reading assigned below subunit 2.5.  This reading refines your attention by elevating the importance of finding a line that minimizes the sum or squares.

  • 2.5.5 Analysis of Variance and Covariance  

    Note: This topic is covered by the reading assigned below subunit 2.5.  This reading focuses your attention on the variation of data around a mean for one variable and on the variation of data around the means of two or more variables.  By way of a review, you should know that deviations from the means are squared, making them positive, and are referred to as variances.

  • 2.5.6 Variance of the Least Squares Slope Estimator  

    Note: This topic is covered by the reading assigned below subunit 2.5.  This reading focuses your attention on the distribution of data around a line fitted through the scatter plot.

  • 2.6 Model Types & Change Elements  
    • Reading: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapter 9”

      Link: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapter 9” (PDF)
       
      Instructions: Please open the document you saved for Bruce E. Hansen’s Econometrics, or click on the link above and select “Current Manuscript (2012)” to download this resource.  Read Chapter 9 in its entirety.  After your review of this material, you should be able to distinguish between single and multiple regression models and explain the meaning and significance of the results from those models; for instance, the latter model involves holding specific variables constant.  Additional distinctions pertain to whether the slope coefficient or parameter estimate in a regression model is expressed in terms of units, standard deviations, percentages and so forth.  Most importantly, econometrics concerns itself with portrayal of the underlying assumptions and assessing the data and results for compliance with a key set of assumptions.  This chapter also covers the topics outlined in sub-subunits 2.6.1 and 2.6.2.
       
      Studying this topic should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 2.6.1 Slope and Amounts  

    Note: This topic is covered by the reading assigned below subunit 2.5.  This reading focuses your attention on slope coefficients or estimates that are expressed in terms of units specific to the variables under analysis.

  • 2.6.2 Beta Coefficients and Deviations  

    Note: This topic is covered by the reading assigned below subunit 2.5.  This reading focuses your attention on slope coefficients or estimates that are expressed in terms of deviations specific to the variables under analysis.

  • 2.7 The Multiple Regression Model  

    This subunit begins by drawing attention to the least squares principle, the expressions for regression coefficients, and how to interpret these coefficients.  You will then be prepared to explain the precision of the regression coefficients and the tests of hypotheses relating to them.  As they pertain to underlying assumptions, you will gain information about how to identify and handle multicollinearity; discriminating between the effects of individual explanatory variables when they are closely related will be an ongoing concern in regression analysis.  The subunit concludes with a discussion of F tests that evaluate the joint explanatory power of the explanatory variables or subsets of them, and shows how a t-test can be thought of as a marginal F test.

    • Reading: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapters 4, 5, and 8”

      Link: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapters 4, 5, and 8” (PDF)
       
      Instructions: Please open the document you saved for Bruce E. Hansen’s Econometrics, or click on the link above and select “Current Manuscript (2012)” to download this resource.  Please read Chapters 4, 5, and 8 in their entirety to learn about the algebra of least squares, least squares regression, and hypothesis testing.
       
      Studying these chapters should take approximately 3.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 2.7.1 Specification Error  
    • Reading: Pennsylvania State University: Herman J. Bierens’ “Specification of Econometric Models”

      Link: Pennsylvania State University: Herman J. Bierens’ “Specification of Econometric Models” (PDF)
       
      Instructions: When you click on the link above, you will be directed to Herman J. Bierens’ webpage for the course “Economic Forecasting.”  Please scroll your mouse down to “Course Materials,” and then click the “Model Specification Rules” link to download the entire lecture notes (16 pages).  These notes will help you make decisions regarding the inclusion of variables into a model that will be tested using statistical analysis procedures.
       
      Studying this document should take approximately 1.25 hours to complete.

      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 2.7.2 Model Estimation with Multiple Independent Variables  

    Note: This topic is covered by the reading assigned below subunit 2.7.  This reading focuses your attention on how to interpret one slope estimate at a time when there are two or more independent variables in an equation or model.  Be mindful that models are meant to be simplifications of reality.  As you are likely aware, statistical models such as those employed in regression analysis could include some irrelevant variables and/or exclude some relevant variables.

  • 2.7.3 R-squared and Adjusted R-squared  

    Note: This topic is covered by the reading assigned below subunit 2.7.  This reading focuses your attention on two forms of a statistic that provides information about the degree to which variations in one or more independent variables explain variations in the dependent variable.  The adjusted form takes into account the presence of two or more independent variables.  It allows analysts to compare models containing different numbers of independent variables.

  • 2.7.4 Multicollinearity  

    Note: This topic is covered by the reading assigned below subunit 2.7.  This reading focuses your attention on the correlation that exists between or among the set of independent variables in a regression model.  Some amount of multicollinearity is always present.  Its presence may translate into a violation of underlying assumptions.

  • 2.7.5 Partial Correlation and Stepwise Regression  
  • 2.7.6 The Generalized Linear Model  
  • 2.7.7 Using t Tests and F Tests for Hypotheses with Multiple Parameters  

    Note: This topic is covered by the reading assigned below subunit 2.7.  This reading focuses your attention on differences in the applications between t tests and F tests.  For example, one test generally deals with hypotheses that specify relationships between variables and the other test deals with model level hypotheses that specify relationships among the population variances.

  • 2.8 Regression Model Interpretation and Statistics  

    The search for a theoretically correct model can be exasperating.  This subunit identifies a set of criteria including parsimony, identifiability, goodness of fit, theoretical consistency, and predictive power.  One critical assumption of the classical linear regression model is that all disturbances have the same (i.e. homoscedastic) variance.  If this assumption is not satisfied, we will encounter the problem of heteroscedasticity.  In this subunit, we will consider several methods of detecting and remedying heteroscedasticity.  In the presence of autocorrelation (where error terms are correlated), ordinary least square (OLS) estimators, although unbiased, are not efficient.  This subunit will guide you in detecting autocorrelation by using several different methods and will explain how to transform the model to minimize autocorrelations.  By now, you should know that regression analysis is a robust statistical procedure that lends itself to abuse.  The application of a theoretical framework and the focus on underlying assumptions will ensure appropriate use of the procedure.  Econometrics is a subject that attends to those matters.

    • Reading: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapter 6”

      Link: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapter 6” (PDF)
       
      Instructions: Please open the document you saved for Bruce E. Hansen’s Econometrics, or click on the link above and select “Current Manuscript (2012)” to download this resource.  This reading will generally direct your attention to matters both surrounding the interpretation of results from regression analysis and requiring routine evaluations of dataset compliance with underlying assumptions.
       
      Studying this topic should take approximately 2 hours minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Lecture: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 18”

      Link: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 18” (YouTube)

      Instructions: Please click on the link above, and view the entire lecture.  This lecture covers the topics outlined in sub-subunits 2.8.5 through 2.8.7, reinforces the material covered in your reading of the Hansen document, and presents additional insights by using a visual approach to the topics.
       
      Watching this lecture and pausing to take notes takes approximately 1.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Lecture: YouTube: University of Oregon: Mark Thoma’s “Econometrics Winter 2009 – Lecture 2”

      Link: YouTube: University of Oregon: Mark Thoma’s “Econometrics Winter 2009 – Lecture 2” (YouTube)
       
      Instructions: Please click on the link above, and view the entire lecture.  This lecture also covers the topics outlined in sub-subunits 2.8.1 through 2.8.5.  This lecture directs a shift in your attention from the mechanics behind the evaluation of compliance with assumptions toward the values and purposes of testing hypotheses.
       
      Watching this lecture and pausing to take notes should take approximately 2 hours to complete. 
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 2.8.1 Hypothesis Testing: Estimated and True Values  

    Note: This topic is covered by the lectures assigned below subunit 2.8.  These lectures focus your attention on the fact that statistics arise from analysis of sample data for the purpose of estimating the value that may be found in the population from which the sample was drawn.

  • 2.8.2 Levels of Significance and Confidence  

    Note: This topic is covered by the lectures assigned below subunit 2.8.  These lectures focus your attention on the degrees by which decisions are made in the process of testing a hypothesis; for example, a choice of .05 for the significance level basically translates into a statement that the analyst is 95 percent confident that the true population parameter will be within a specific range or interval.  Keep in mind statistical results arising from analysis of sample data can provide estimates of the parameter in the population from which the sample was drawn.

  • 2.8.3 F Tests and R-squared  

    Note: This topic is covered by the lectures assigned below subunit 2.8.  These lectures focus your attention on the difference between two statistical results.  F tests reveal information about equality among the variances in two or more populations.  R-squared reveal information about the degree to which the model fits the data.

  • 2.8.4 Critical and Computed F-values  

    Note: This topic is covered by the lectures assigned below subunit 2.8.  These lectures focus your attention on comparisons between the chosen or critical F-value and the computed or table-based value and serves as a reminder of similar comparisons made in the process of statistical analysis.

  • 2.8.5 P-values  

    Note: This topic is covered by the lectures assigned below subunit 2.8.  These lectures essentially focus your attention on the probability by which to render decisions about a hypothesis test in a form comparable to the chosen level of statistical significance.

  • 2.8.6 Type I and Type II Errors  

    Note: This topic is covered by the lectures assigned below subunit 2.8.  These lectures focus your attention on the possibility of rejecting a result that is true or accepting a result that is false.

  • 2.8.7 Properties of Residuals in Least Squares Analyses  

    Note: This topic is covered by the lectures assigned below subunit 2.8.  These lectures focus your attention on the degree of compliance between residuals and assumptions about the error term.  One of those assumptions, covered in the next sub-subunit, is concerned with equality in variances of the residuals.

  • 2.8.8 Heteroscedasticity  
  • 2.8.9 Autocorrelation  

    Note: This topic is covered by the lectures assigned below subunit 2.8 and sub-subunit 2.8.8.  These lectures focus your attention on the issue of whether there is excessive correlation that residuals exist in a set of data; this is one of two major focal points within econometrics and its emphasis on compliance with underlying assumptions about the error term.  Part of the analyses done by econometricians also entails making decisions about the patterns found detected among those correlations.

  • 2.8.10 Stochastic Explanatory Variables in the Model  
  • 2.9 Dummy Variables  
  • 2.10 Maximum Likelihood Estimation  
  • Unit 2 Discussion Board  
    • Activity: The Saylor Foundation’s “ECON203: Unit 2 Discussion Questions”

      Link: The Saylor Foundation’s “ECON203: Unit 2 Discussion Questions” (HTML)
       
      Instructions: After reviewing the unit materials, please post and respond to the following topics on the course discussion board.  Feel free to start your own related posts and respond to other students’ postings as well.

      1. Explain how the estimates from ordinary least squares are BLUE.
      2. What are the assumptions that econometrics makes about the error term?
      3. How is autocorrelation different from heteroscedasticity?
       
      Posting and responding on the discussion board should take approximately 5 hours to complete.

  • Unit 3: Demand Analysis  

    This unit returns to the content of economics and it introduces key components of demand and its analysis. It will prompt you to develop your understanding of demand and focus on aspects relevant to quantitative analyses and econometrics.  Your needs and wants as a consumer who acquires goods and services form the basis of individual and market demand.  
     
    Most likely you are already aware of how your income, the price of the specific good or a service under consideration, and the prices of other related goods or services are taken into account before a purchase occurs.  Those three quantitative variables relate to your willingness and ability to obtain a good or service and are key influences behind an individual's purchase decision, while other variables are held constant.  For example, your current monthly income along with the amount for a mortgage payment in relation to the amount of a rental payment are key considerations that influence your housing arrangement choices, though many other less important factors exist.  In terms of a qualitative variable that can be coded using two values to fit the analyses, the situation, in which some residential locations gain consideration while others meet dismissal, forms the content of what we call a dummy variable. 
     
    The same is likely to apply to other consumers who are in or entering the market for housing.  The unit concludes with sections covering aspects of a qualitative nature (for instance, dummy variables), illustrating the application of time to analyses, and turning attention from matters of demand to those of supply.  As we will see in the next unit, suppliers form the other side of a market and they also make decisions influenced by many factors. 

    Unit 3 Time Advisory   show close
    Unit 3 Learning Outcomes   show close
  • 3.1 Theory of Consumer Behavior  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Consumer Behavior”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Consumer Behavior” (PowerPoint)
       
      Instructions: Please click on the link above to access the PowerPoint section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link titled “Consumer Behavior” to download the PowerPoint presentation.  Study this entire presentation (32 slides in total).  This set of slides will introduce many basics about consumer behavior, connect utility maximization with income constraints, develop demand functions, and prepare you for additional learning.  This reading also covers the topics outlined in sub-subunits 3.1.1 through 3.1.3.
       
      Studying this resource should take approximately 1.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 3.1.1 Indifference Maps: Utility Maximization & Budget Constraints  
    • Activity: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Budget Constraint”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Budget Constraint” (Excel)

      Instructions: Please click on the link above to access the Excel modules section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link titled “Budget Constraint” to download the spreadsheet.  Open the spreadsheet and use the up and down arrows to change prices, income, or both, but hold quantities constant by leaving them unchanged until you observe the results from changing the prices, income, or both.  This activity focuses on manipulating data in the construction of budget constraints and provides a foundation on which to add depth to your learning about indifference maps.  In terms of real life applications, your ability to consume relates to the level of income you earn and the quantities of a good or a service you can obtain. 
       
      Participating in this activity should take approximately 15 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Consumer Behavior (Section 3)”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Consumer Behavior (Section 3)” (PDF)
       
      Instructions: Please click on the link above to access R. Larry Reynolds’ Intermediate Microeconomics, and then select the link for “Consumer Behavior (Section 3)” to download the PDF.  Read the entire section (10 pages).  The information in this reading will help you learn how willingness and ability combine in forming the foundation for individual level demand. Willingness to consume relates to the marginal benefits or levels of satisfaction you gain from consuming a good or using a service.  The ability to consume relates to the level of income you earn and the quantities of a good or service you can purchase at a given price.  You will also learn how to construct budget lines or constraints as well as build an indifference map, as you observe points representing consumer equilibrium and changes in prices, income, or both.  Our exchanges within a retail setting tend to reflect an internal calculus or mental process through which we attempt to maximize satisfaction subject to a budget constraint; in other words, we strive to do the best with what we have.  This reading covers the topics outlined in sub-subunits 3.1.1–3.1.3.
       
      Studying this reading should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 3.1.2 Consumer Equilibrium  

    Note: This topic is covered by the PDF document assigned below sub-subunit 3.1.1.  In particular, review pages 8–10, which address the locus of equilibrium and its relation to the equalities between the slopes of a budget line and an indifference curve.  Take approximately 15 minutes reviewing this material.

  • 3.1.3 Substitution and Income Effects  

    Note: This topic is covered by the PDF document assigned below sub-subunit 3.1.1.  In particular, focus on pages 6–9, which address how to distinguish between the two effects given a change in the price of a good.  Take approximately 15 minutes reviewing this material.

  • 3.2 Elasticity and Demand  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Demand (Section 4)”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Demand (Section 4)” (PDF)
       
      Instructions: Please click on the link above to access R. Larry Reynolds’ Intermediate Microeconomics, and then select the link for “Demand (Section 4)” to download the PDF.  Read the entire section (19 pages).  This reading will demonstrate how to construct individual and market level demand curves and will reinforce the idea that a demand schedule reflects the quantities demanded at each price.  This reading also covers the topics outlined in sub-subunits 3.1.3, 3.2.1, 3.2.2, 3.2.4, 3.2.5, 3.3.1, 3.3.1.1, and 3.3.3.
       
      Studying this reading should take approximately 1 hour to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Elasticity”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Elasticity” (PowerPoint)
       
      Instructions: Please click on the link above to access the PowerPoint section of R. Larry Reynolds’ Intermediate Microeconomics, and then select the link titled “Elasticity” to download the PowerPoint presentation.  Study this entire presentation (45 slides in total).  This set of slides will help you master one of the most challenging portions in intermediate microeconomics and connect with the coverage of topics above in Units 2 and 3 and below in sub-subunits 3.2.1 and 5.3.2 as well as subunit 6.1.  In mastering various microeconomic topics and applying econometrics to them, the information you gained and the analytical skills you honed will help you connect the slope and regions of a demand curve to elasticity.  As you continue to add depth to your learning on elasticity, it is important to be mindful of the following:
       

      • elasticity refers to the degree to which quantities are sensitive to changes in price or income;
      • prices or quantities remain constant in some instances such as perfectly elasticity or inelastic demand;
      • percentage change is sensitive to the size of the base or starting point;
      • elasticity coefficients vary along a constant-sloped demand curve; and
      • those coefficients are constant along a curvilinear (varied-slope) demand curve.
       
      This reading also covers the topics outlined in sub-subunits 3.2.1.1, 3.2.1.2, 3.2.2, 3.2.4, and 3.2.5.
       
      Studying this reading should take approximately 2.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 3.2.1 Price Elasticity of Demand  
    • Lecture: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Flash Modules and QuickTime Movies”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Flash Modules and QuickTime Movies” (Adobe Flash and QuickTime)
       
      Instructions: Click on the link above to access the Flash and QuickTime section of R. Larry Reynolds’ Intermediate Microeconomics.  Under the “Flash Modules” section, click on the link to “Elasticity Flash Lecture,” and view this presentation.  Under the “QuickTime Movies” section, view “Price Elasticity.”  The information in these resources will help you master the elasticity concept in preparation for further development in some forthcoming units.  At this point, you should begin to have a firm grasp of how elasticity and price changes relate to changes in revenue and how revenues can decline under cases in which prices continue to rise.  All these points and others are essential in contributing to the success of managers, economists, and econometricians.  These resources also cover the topics outlined in sub-subunits 3.2.1.1, 3.2.1.2, 3.2.2, 3.2.4, and 3.2.5.
       
      Studying these resources should take approximately 1.5 hours to complete. 
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Lecture: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 10”

      Link: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 10” (YouTube)

      Instructions: Please click on the link above, and view this entire lecture.  This lecture addresses the transformation of data on prices and quantity demanded into a form by which the results for slope estimates become percent changes rather than unit changes.  Steps entail converting variables and then including them in regression analyses.  This lecture covers sub-subunits 3.2.1 through 3.2.1.3.
       
      Watching this lecture and pausing to take notes should take approximately 1.25 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 3.2.1.1 Regions along a Constant Slope Demand Curve  

    Note: This topic is covered by the PowerPoint assigned below subunit 3.2 and the web media assigned below sub-subunit 3.2.1.  Focus on text in any slide that mentions the three regions of elasticity along a straight line demand curve.  Remember that consumers are more sensitive to changes in price for high-priced items than for low-priced items.  Take approximately 15 minutes to review this material.

  • 3.2.1.2 Elasticity Coefficients  

    Note: This topic is covered by the PowerPoint presentation assigned below subunit 3.2 as well as the web media assigned below sub-subunit 3.2.1.  In particular, review slides 4–13, which highlight the midpoint formula for calculating elasticity coefficients, enhance awareness of the regions of demand curves, and discuss the reality that consumers are more sensitive to variations in the price of high-end items than they are for items available at low prices.  Take approximately 15 minutes to review this material.

  • 3.2.1.3 Loglinear Regression Models: Elasticities and Percentages  
    • Reading: University of Notre Dame: Richard Williams’ “Nonlinear Relationships”

      Link: University of Notre Dame: Richard Williams’ “Nonlinear Relationships” (PDF)
       
      Instructions: When you click on the link above, you will be directed to Richard Williams’ website for his statistics course.  Please scroll your mouse down about three quarters of the way, and then click on the link titled “Nonlinear Relationships” to download the lecture notes.  Study the entire set of lecture notes (14 pages), which will expose you to relationships that are in a form other than a straight line.
       
      Studying this reading should take approximately 1 hour to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 3.2.2 Elasticity, Total Revenues, and Total Expenditures  

    Note: This topic is covered in part by the PowerPoint presentation assigned below subunit 3.2.  In particular, review slides 12–16, which address the connections among the revenues of firms, the prices of their goods and services, and the sensitivity of consumer purchase to price changes.  Take approximately 15 minutes to review this material, which will also cover the topics outlined below in sub-subunits 3.2.2.1 and 3.2.2.2.

    • Lecture: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 20”

      Link: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 20” (YouTube)

      Instructions: Please click on the link above, and view the entire lecture.  This lecture discusses the connections among changes in prices of a good, in firm revenues, and in consumer expenditures.  This lecture covers sub-subunits 3.2.2.1 and 3.2.2.3 and subunit 3.3.
       
      Watching this lecture and pausing to take notes should take approximately 1.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 3.2.2.1 Total Revenue Maximization  

    Note: This topic is covered in part by the PowerPoint presentation assigned below subunit 3.2.  In particular, focus on slides 12–16 and it focuses your attention on changes in marginal revenue or the slope of the revenue function that approach zero.

  • 3.2.2.2 Demand and Total and Marginal Revenues  

    Note: This topic is covered by in part by the PowerPoint presentation assigned below subunit 3.2. In particular, focus on slides 12–16 and the connections among demand and revenue curves. 

  • 3.2.3 Constant Total Revenue Demand Curves  

    Note: This topic is an extension of the readings covered under subunit 3.2.  Total revenue will remain constant when the price coincides with the point on a straight line demand curve at which unitary elasticity occurs; that is, where the absolute value of the coefficient for price elasticity of demand is equal to 1.00.  In essence, revenues increase or decrease when prices vary from that point. 

  • 3.2.4 Income Elasticity of Demand and Types of Goods  
    • Activity: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Income Elasticity”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Income Elasticity” (Excel)
       
      Instructions: Please click on the link above to access the Excel modules section of R. Larry Reynolds’ Microeconomics.  Click on the link titled “Income Elasticity” to download the spreadsheet.  Open the spreadsheet, click on the tabs at the bottom, and use the up and down arrows to change prices, income, or both to add depth to your learning about normal and inferior goods.  In terms of real life applications, you purchase more of a normal good or service as your   income rises and less of an inferior good.   
       
      Participating in this activity should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Lecture: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 11”

      Link: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 11” (YouTube)

      Instructions: Please click on the link above, and view the entire lecture extending your base of knowledge about the connections of changes in income to demand and switches in purchases of goods.
       
      Watching this lecture and pausing to take notes should take approximately 45 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.
       

  • 3.2.5 Cross Price Elasticity of Demand and Types of Goods  
    • Activity: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Cross Elasticity”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Cross Elasticity” (Excel)
       
      Instructions: Please click on the link above to access the Excel modules for R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link titled “Cross Elasticity” to download the spreadsheet.  Open the spreadsheet, click on the tabs at the bottom, and use the up and down arrows to change prices of the related goods.  This exercise will add depth to your learning about goods considered to be substitutes or compliments; it is possible to compare apples to oranges, as they are types of fruit. In terms of real life applications, the quantity of a good or service purchased depends partly on the price of related goods. 
       
      Participating in this activity should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Assessment: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Elasticity”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Elasticity” (PDF)
       
      Instructions: When you click on the link above, you will be directed to the problems and answer section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link titled “Elasticity” under the “Problems and Answer Sheets” heading.  Please complete the “Elasticity” assessment, following the directions on the PDF.  After you have completed the assessment, click on the “(Answer Sheet)” link on the main webpage; this link appears directly below the link to the exercise.  Your participation in this assessment allows for a preliminary measurement on your mastery of the Unit 3 learning outcomes, opportunities to reflect on your progress and current learning experience, and the ability to identify areas in need of additional review.
       
      This assessment should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

  • 3.3 Demand Estimation and Forecasts  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Demand (Section 4)”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Demand (Section 4)” (PDF)
       
      Instructions: You were directed to download this resource in subunit 3.2.  If needed, please click on the link above to access R. Larry Reynolds’ Intermediate Microeconomics, and then select the link for “Demand (Section 4)” to download the PDF.  Re-read and review the entire section (19 pages), focusing most of your attention this time on pages 10–14.  The information in these pages will require your interpretation and solution of various functions in several demand estimation problems.  This reading covers the topics outlined in sub-subunits 3.3.1–3.3.3.
       
      Reviewing this reading should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 3.3.1 Demand Functions: Income and Prices  

    Note: This topic is covered by the PDF document assigned below the subunit 3.3.  In particular, review pages 10–12, which highlight the relationships of variables to demand including income and the prices of related goods, and then complete the problems stated under sub-subunits 3.3.1.1 and 3.3.1.2.  Take approximately 15 minutes to review this material.

  • 3.3.1.1 A Good's Own Price and Related Good's Prices  

    Note: This topic is covered by the reading assigned below subunit 3.3.  In particular, focus on learning more about how a good's own price and the prices of related goods fit with the demand function and completing the problems on page 4 (numbered 1–5) and the problem on page 14.  Take approximately 15 minutes to work through these problems.

  • 3.3.1.2 Parameter Estimates  

    Note: This topic is covered by the reading assigned below subunit 3.3.  In particular, focus on learning more about how a good’s own price and the prices of related goods fit with the demand function.  Note that the problems assigned below sub-subunit 3.3.1.1 add depth regarding whether the slope estimate is positive or negative and the numeric size of that estimates.

  • 3.3.1.2.1 Normal and Inferior Goods  

    Note: This topic is covered by the reading assigned below subunit 3.3.  In particular, focus on learning more about the changes in demand and quantity demanded as a result of the change in income.  The direction in the sign of the slope estimate is important.  That effort will help you in completing the problems on page 4 (numbered 1–5) and the problem on page 14 that are assigned in sub-subunit 3.3.1.1.

  • 3.3.1.2.2 Substitutes and Complements  

    Note: This topic is covered by the reading assigned below subunit 3.3.  In particular, focus on learning more about how the changes in quantity of a specific good reflect the changes in price of related good.  The direction in the sign of the slope estimate is important here as well.  That knowledge will help you complete the problems on page 4 (numbered 1–5) and the problem on page 14 that are assigned in sub-subunit 3.3.1.1.

  • 3.3.2 Creation and Applications of Dummy Variables  
    • Reading: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapter 3: Conditional Expectation and Projection”

      Link: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapter 3: Conditional Expectation and Projection” (PDF)
       
      Instructions: When you click on the link above, you will be directed to Bruce E. Hansen’s Econometrics.  Please scroll your mouse down, and then click “Current Manuscript (2012)” to download the entire book; you may have downloaded this book as part of your studies in Unit 2.  Please read “Section 3.15” on pages 46 and 47.  This information will help you learn about dummy variables, as they pertain to coding nominal level data or categories (male or female, for instance) into the numbers 0 or 1, for subsequent use in regression or other statistical analyses.  This reading covers the topics listed in sub-subunits 3.3.2 and 3.3.4.
       
      Studying this reading should take approximately 15 minutes to complete.

      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 3.3.3 Time Series Analysis  
    • Reading: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapter 17: Univariate Time Series”

      Link: University of Wisconsin-Madison: Bruce E. Hansen’s Econometrics: “Chapter 17: Univariate Time Series” (PDF)
       
      Instructions: When you click on the link above, you will be directed to Bruce E. Hansen’s Econometrics.  Please scroll your mouse down, and then click “Current Manuscript (2012)” to download the entire book; you may have downloaded this book as part of your studies in Unit 2.  Please review “Chapter 17” in its entirety (8 pages).  This information will help you learn about the application of time as the explanatory or independent variable in an equation or function.  In your future endeavors in econometrics or comparable analyses, be mindful that time may explain many economic phenomena.  This reading also covers the topic outlined in sub-subunit 3.3.4. 
       
      Studying this reading should take approximately 30 minutes to complete.

      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 3.3.4 Sales, Cycles, and Seasonal Variations  

    Note: This topic is covered by the PDF document assigned below sub-subunit 3.3.3.  In particular, review the information on “Seasonal Effects” on page 272, which provides details regarding a specific application of dummy variables to cyclical and seasonal events.  Take approximately 15 minutes to review this material.

  • Unit 3 Discussion Board  
    • Activity: The Saylor Foundation’s “ECON203: Unit 3 Discussion Questions”

      Link: The Saylor Foundation’s “ECON203: Unit 3 Discussion Questions” (HTML)
       
      Instructions: After reviewing the unit materials, please post and respond to the following topics on the course discussion board. Feel free to start your own related posts and respond to other students’ postings as well.

      1. How does income elasticity add value to the description of good types?
      2. In what major ways does time series analysis differ from other types of analysis?
      3. Provide an example of a study in which you would construct and use a dummy variable.
       
      Posting and responding on the discussion board should take approximately 5 hours to complete.

  • Unit 4: Supply Analysis  

    This unit focuses your attention on key aspects of cost and production functions.  Some production costs can increase or decrease at a rate decreasing with an expansion in output and others can change at a rate increasing with that expansion.  For example, a restaurant manager who seeks to decrease the length of time customers wait for a meal may add servers or cooks to the point at which there are too many.  In essence, they begin to get in each other’s way, to raise safety-related issues, or to drop plates of food – all of which eventually increase operating costs and customer wait times as well as decrease revenues and profits.  In contrast to that curvilinear situation, some relationships between output and costs bear changes that occur at a constant unit-for-unit or linear rate.  Whether the relationship between costs and output is linear or otherwise, it is safe to assume that firms seek to maximize profit and to operate at the level of output where maximization occurs.  Economists use econometrics, regression analysis, and graphs as aides in analyzing operations, promoting optimization, and achieving efficiency.  This unit will prompt you to compare and contrast results from linear and loglinear regression analysis against graphs and concepts commonly used in studies of firm and market levels of supply.  The unit concludes with a discussion of returns to scale and provides a foundation for the last two units in this course.

    Unit 4 Time Advisory   show close
    Unit 4 Learning Outcomes   show close
  • 4.1 Short-Run Production and Costs  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Production and Costs”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Production and Costs” (PowerPoint)
       
      Instructions: Please click on the link above to access the PowerPoint section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link titled “Production and Costs” to download the PowerPoint presentation.  Study this entire presentation (33 slides) to learn difference between short run and long run costs, shapes of cost functions, and significance of curve's intersections on graphs.  This reading introduces the topics outlined in subunit 4.1 and sub-subunits 4.2.5, 4.2.8, 4.2.9, and 4.3.4.
       
      Studying this resource should take approximately 1.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 4.1.1 Total and Marginal Products of Labor  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Production and Cost Summary

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Production and Cost Summary” (PDF)
       
      Instructions: Please click on the link above to access the problem and answer section of R. Larry Reynolds’ Intermediate Microeconomics.  Select the link titled “Production and Cost Summary” to download the PDF.  Read the entire document (4 pages), which focuses on the nature and results of diminishing returns in the case for which there are variable and fixed costs and on the connections among several cost functions.  The information in this reading will enhance your participation in two upcoming Unit 4 activities.  This reading summarizes topics covered in sub-subunits 4.2.5, 4.2.8, 4.2.9, and 4.3.4.
       
      Studying this reading should take approximately 15 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 4.1.2 Diminishing Returns versus Efficiency  
    • Reading: Iowa State University: Arne Hallam’s Microeconomics: “Production Functions”

      Link: Iowa State University: Arne Hallam’s Microeconomics: “Production Functions” (PDF)
       
      Instructions: Please click on the link above to access Arne Hallam’s webpage on microeconomics, scroll down to the “Course Materials” table, and then select the link to “Production Functions” to download the PDF.  Read the entire document (47 pages), applying the technical skills you gained in Unit 2.  This reading covers the topics outlined in sub-subunits 4.1.2 through 4.1.5, 4.2.1 through 4.2.4, 4.2.6, 4.2.7, and 4.3.1 through 4.3.3.
       
      Studying this reading should take approximately 3 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 4.1.3 Productivity in Relation to Changes in Total and Average Product  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Focus on the changes in shape of output curves in relation to the changes in inputs.

  • 4.1.4 Fixed, Variable, and Total Costs  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Focus on the calculations of these costs and changes in costs corresponding with changes in output.

  • 4.1.5 Average and Marginal Costs  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Focus on calculation of these costs and the shapes and intersections of their functions.

  • 4.2 Long-Run Production and Costs  
  • 4.2.1 Factors of Production: Land, Labor, and Capital  

    Note: This topic is covered in part by the PDF document assigned below sub-subunit 4.1.2.  Focus your attention on the situation in which all costs are variable and plant size is dynamic.

    • Lecture: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 21”

      Link: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 21” (YouTube)

      Instructions: Please click on the link above, and view this lecture in its entirety.  Focus your attention on the conversions and uses of data in a form that enables close examinations of the effect of changes in inputs on marginal product.  This lecture also covers the topics outlined in 4.3.3 through 4.3.3.3.
       
      Watching this lecture and making notes takes approximately 1.5 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 4.2.2 Relative Prices of Inputs  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  This reading focuses your attention on the need to allocate funds to the purchases of varied amounts of land, labor, or capital so that optimization occurs; for example, the marginal cost of the input compares to the marginal product.  Take approximately 1 hour to review this material to cover the topics in sub-subunits 4.2.2 through 4.2.7.  Make sure to read the notes that correspond to each sub-subunit as these indicate what you should focus on in the readings.

  • 4.2.3 Optimization: Marginal Product and Last Dollar Spent on Inputs  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  This reading focuses your attention on the need to examine changes in marginal product relative to changes in the marginal cost of land, labor, and/or capital.

  • 4.2.4 Efficiency: Marginal Product per Dollar Spent  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  This reading focuses your attention on changes in the overall levels of output and costs, which entails comparisons between marginal product and average product.

  • 4.2.5 Break Even Analysis  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.1.  This reading focuses your attention on the area in which marginal cost approaches average total cost.

  • 4.2.6 Economies of Sale, Product Specialization, and Geographic Markers  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  This reading focuses your attention on the u-shaped long run average cost curve for a specific good.  Firms can use the curve to decide which production lines and geographic regions exhibit economies of scale.  This information is also useful in analyses of the firm’s scope.

  • 4.2.7 Marginal Product and Worker Specialization  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  This reading focuses your attention on the importance of placing workers into service where they can be the most productive.

  • 4.2.8 Marginal Rate of Technical Substitution (MRTS)  

    Note: This topic is covered in part by the PDF document assigned below sub-subunit 4.1.1.  This reading focuses your attention primarily on the slope of the isoquant curve in which varied combinations of inputs, such as capital and labor, produce the same amount of output and secondarily on the ratio between the marginal product of labor and the marginal product of capital.

    • Lecture: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 22”

      Link: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 22” (YouTube)

      Instructions: Please click on the link above, and view the entire lecture.  Focus your attention on the slope of the isoquant curve, working to extend your knowledge about the slope’s equality with the slope of the isocost curve.  This lecture covers sub-subunits 4.2.8 through 4.3.1, and 4.3.4.
       
      Watching this lecture and pausing to take notes should take approximately 2 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 4.2.9 Expansion Paths: Equality between MRTS and Slope of Isoquant  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Construction of Isoquant”

      Link:Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Construction of Isoquant” (PowerPoint)
       
      Instructions: Please click on the link above to access the PowerPoint section of R. Larry Reynolds’ Intermediate Microeconomics.  Select the link titled “Construction of Isoquant” to download the PowerPoint presentation.  Study this entire presentation (3 slides) to learn how to construct lines depicting equal cost. 

      Studying this resource should take approximately 15 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 4.3 Estimations of Production and Cost Functions Using Regression Analysis  
  • 4.3.1 Total Product and Diminishing Returns from Labor  

    Note: This topic is covered in part by the PDF document assigned below sub-subunit 4.1.2.  This reading emphasizes the inflection points in the total product curve and changes in the marginal product of labor;this is a pattern to consider in setting up a regression model and creating variables for inclusion in the modelTake approximately 1 hour to review this material to study the topics in sub-subunits 4.3.1 through 4.3.3.  Make sure to review the notes below each sub-subunit as these will indicate what you should focus on as you review this material.

  • 4.3.2 Nature of Influence of Labor on Total Product  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Focus your attention on how the first few additions of labor contribute more to total output than do subsequent units of labor; inflection points are present, calling for additional handling under regression analysis procedures.

  • 4.3.2.1 Total Product  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Direct your attention on the linear and curvilinear increases in product as a consequence of input engagements.

  • 4.3.2.2 Average Product  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Direct your attention to the division of product by input quantity.

  • 4.3.2.3 Marginal Product  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Direct your attention to the additional output created from additional input.

  • 4.3.3 Nature of Influence of Output on Costs  

    Note: This topic is in part covered by the PDF document assigned below sub-subunit 4.1.2.  Focus your attention on nature of the relationship between output and costs; keep in mind regression analysis procedures uncover that nature and whether the relationship is statistically significant.

  • 4.3.3.1 Total Cost  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Direct your attention to the addition of fixed and variable costs and the curvilinear nature of costs as a function of outputs; essentially this note is meant to sensitize you to the need for adjustments to the variables before entering them into a regression analysis model.

  • 4.3.3.2 Average Total Cost  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Direct your attention to the curvilinear, u-shaped form of the average total cost   curve; recall that average total cost is the sum of fixed and variable costs divided by output.

  • 4.3.3.3 Marginal Cost  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Direct your attention to the need to consider the j-shaped form of the marginal cost curve in which some segments are linear and others are curvilinear in nature.

  • 4.3.3.4 Average Variable Cost  

    Note: This topic is covered by the PDF document assigned below sub-subunit 4.1.2.  Direct your attention to the need to consider the u-shaped form of the average variable cost curve and to prompt adjustments or transformations of the cost variable before its inclusion in a regression model; by way of review, the formula for average variable cost divided by output.

  • 4.3.4 Marginal and Average Costs When Constant Returns to Scale Exist  
  • Unit 4 Discussion Board  
    • Activity: The Saylor Foundation’s “ECON203: Unit 4 Discussion Questions”

      Link: The Saylor Foundation’s “ECON203: Unit 4 Discussion Questions” (HTML)
       
      Instructions: After reviewing the unit materials, please post and respond to the following topics on the course discussion board. Feel free to start your own related posts and respond to other students’ postings as well.
       
      1. What steps are required before running linear regression analysis on data that is curvilinear in form?
      2. What are the main differences between the first and the second derivative?
      3. Why does the break-even point coincide with price covering average total costs?
       
      Posting and responding on the discussion board should take approximately 5 hours to complete.

  • Unit 5: Profit Maximization & Market Structures  

    This unit covers topics pertaining to market structures.  Those structures refer to the degree by which firms take or make the market price for a good or service and by which firms compete within a market.  In general, market structures and the firms operating within them are classified as being either perfectly competitive or imperfectly competitive.  Those classifications can also be separated into structures bearing specific names according to the amount of control a firm has over the market in which it operates.
     
    At one end of the structure continuum, a firm is a monopoly when it supplies all the goods and services to a market and its share of sales in a market approximates 100 percent.  It makes the market price and is able to prevent entry into the market by other suppliers and to secure and maintain profits above the level considered normal for an industry.  At the other end of the continuum of market structures is the perfectly competitive firm that struggles to survive and to earn the normal rate of profit, observes other firms freely entering and exiting the industry, and sells its goods and services at the price dictated by market forces.  Imperfect competition encompasses three structures in total, one of which is a monopoly.  Another imperfectly competitive market structure consists of monopolistic competitors, which are perfectly competitive firms that attempt to behave like a monopoly.  The remaining imperfectly competitive structure consists of oligopolies (note that the prefix oligo means few and mono means one), which are firms that dominate the market though some amount of competition exists among them.
     
    According to the microeconomic perspective, all firms try to maximize profits by producing at a corresponding level and fetching a price for that output in reference to the market demand curve.  Moreover, those attempts and the four market structures can lead to firm success or failure and varying levels of sales and profit.  Prompting you to focus attention on concepts and calculations regarding normal and economic profits, break-even and shutdown points, and output and price determinations, this unit includes exercises conducting regression analysis and it concludes with an examination of the price range associated with the profit maximizing output level in an oligopolistic market.

    Unit 5 Time Advisory   show close
    Unit 5 Learning Outcomes   show close
  • 5.1 Actions under Perfect Competition  
    • Reading: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Competition”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Competition” (PowerPoint)
       
      Instructions: Please click on the link above to access the PowerPoint section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link titled “Competition” to download this PowerPoint presentation.  Study the entire presentation (27 slides in total).  This set of slides will provide a foundation for studies of market structures, and this resource prompts you to consider perfectly competitive market structures as the ideal form.  This resource covers the topics outlined in sub-subunits 5.1.1 and 5.1.3–5.1.7.
       
      Studying this resource should take approximately 1.25 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 5.1.1 Short-Run Economic Maximization and Losses  

    Note: This topic is covered by the PowerPoint document assigned below subunit 5.1.  Review slides 14–23 on short-run economic maximization.  Review slide 24 to study short-run loss minimization.  Focus on vertical area along marginal cost curve between the average total cost and average variable cost curves.  This area is between the break-even point and the shutdown point, where economic losses typically occur.  Take approximately 15 minutes to review this material.

  • 5.1.2 Shutdown and Break-Even Points  
    • Reading: MIT: Professors Berndt, Doyle, Chapman, and Stoker’s Economic Analysis for Business Decisions: “Lecture 4: Production and Cost I”

      Link: MIT: Professors Berndt, Doyle, Chapman, and Stoker’s Economic Analysis for Business Decisions: “Lecture 4: Production and Cost I” (PDF)
       
      Instructions: Click on the link above to access MIT’s Open Courseware, and then select the link for “Lecture 4: Production and Cost I” to download the PDF.  Read the entire document (13 pages), focusing particularly on page 11 and Figure 7.1.  This reading will reveal how to discern two key points:
       
      1.      the break-even situation occurs when price equals the level at which marginal cost intersects the average total cost; and
      2.      the shutdown situation occurs when price is below the level at which marginal cost intersects the average variable cost curve. 
       
      Studying this reading should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 5.1.3 Factors Affecting Market Exit and Entry  

    Note: This topic is covered by the PowerPoint document assigned below subunit 5.1.  Review slides 25 and 26 on long run profit maximization.  Focus on the changes that occur in economic profit and economic loss.  Economic profit invites firm entry, which results respectively in an increase in supply, a decrease in price, an erosion of profits, firm exit, a decrease in supply, an increase in price and profit.  That cycle can continue while holding all other factors constant.  Take approximately 15 minutes to review this material, which will also apply to sub-subunit 5.1.4.

  • 5.1.4 Dynamics across Entry, Supply, Price, and Exit  

    Note: This topic is covered by the PowerPoint document assigned below subunit 5.1.  Review slides 25 and 26 on long run profit maximization.  Focus on the changes that occur in economic profit and economic loss.  Take approximately 15 minutes to review this material.

    • Lecture: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 23”

      Link: YouTube: Prince Sultan University: Krassimir Petrov’s “MBA Managerial Economics 23” (YouTube)

      Instructions: Please click on the link above, and view this entire lecture.  These video lectures call your attention toward repetitive phases in which economic profit entices supplier entry into the market, an increase in the supply of a good decreases price and erodes profit levels, those declines prompt firms to exit the market, and then supply decreases and prices and profits rise.  This lecture covers sub-subunits 4.2.8 through 4.3.1, 4.3.4, 5.2.3, 5.2.4, subunit 5.3, and sub-subunits 5.3.1 and 5.3.4.
       
      Watching this lecture and pausing to take notes should take approximately 2 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 5.1.5 Consequences from Equality between Marginal Cost and Price  

    Note: This topic is covered by the PowerPoint document assigned below subunit 5.1.  Review slides 8–10, focusing on the equality among price, marginal revenue, and marginal cost and how it relates to output level.  Take approximately 15 minutes to review this material.

  • 5.1.6 Total Revenues, Total Costs, and Profits  
    • Assessment: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Math Quiz”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Math Quiz” (PDF)
       
      Instructions: When you click on the link above, you will be directed to R. Larry Reynolds’ Intermediate Microeconomics.  Select the “Math Quiz” link to download the PDF.  Complete this quiz.  After you complete the quiz, check your work by clicking on “Math Quiz Answers” directly under the link that led to the quiz.  This assessment serves to measure the extent by which you are able to interpret functions expressed in regression form and to solve for the unknowns within a set of equations and it serves to prepare you for subsequent microeconomic analyses.
       
      This assessment should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpages above.

  • 5.1.7 Marginal and Average Revenue Products and Profit Maximization  
  • 5.2 Actions under a Monopolistic Structure  
    • Reading: MIT: Professor Frank Levy’s Microeconomics: “Lecture 14: Notes on Oligopoly Day 1”

      Link: MIT: Professor Frank Levy’s Microeconomics: “Lecture 14: Notes on Oligopoly Day 1” (PDF)
       
      Instructions: Click on the link to above, and then select the link for “Lecture 14: Notes on Oligopoly Day 1” to download the PDF.  Study this entire document (18 pages).  This reading will help you learn about firms that operate with market power within an imperfectly competitive market structure.  This reading also covers the topics outlined in sub-subunits 5.2.1 through 5.2.6.
       
      Studying this document should take approximately 1 hour to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • 5.2.1 Perspectives on Economic Profit  

    Note: This topic is covered by the PDF document assigned below subunit 5.2.  Focus your attention on the structure-based origins and maintenance of profits that exceed the level considered normal for an industry.  Take approximately 30 minutes to review this reading to cover sub-subunits 5.2.1 through 5.2.6.  Make sure to review the notes below each sub-subunit as these indicate what you should focus on in the reading for each topic.

  • 5.2.2 Demand Elasticities and Market Power  

    Note: This topic is covered by the PDF document assigned below subunit 5.2.  Focus your attention on how firms with market power typically charge prices that coincide with the inelastic or upper region of a demand curve.

  • 5.2.3 Economis of Scale and Market Power  

    Note: This topic is covered in part by the PDF document assigned below subunit 5.2.  Focus your attention on how scale of operations inhibits entry by other firms into a market, because smaller firms face higher average costs and are unable to compete with larger firms; in other words, economies of scale can be a barrier to entry.

  • 5.2.4 Product Differentiation and Market Power  

    Note: This topic is covered in part by the PDF document assigned below subunit 5.2.  Focus your attention on how advertising can differentiate products, create brand loyalty, and inhibit entry into a market and/or sales by other firms; soft drink industry serves as fine example of how firms differentiate caramel-colored carbonated sugar water.

  • 5.2.5 Mergers and Market Power  

    Note: This topic is covered by the PDF document assigned below subunit 5.2.  Focus your attention on how firms from the same industry or across different industries combine their market shares, creating market power and reducing the number of firms in a market or industry.

  • 5.2.6 Price, Marginal Revenues, and Marginal Revenue Product  

    Note: This topic is covered by the PDF document assigned below subunit 5.2.  Focus your attention on the inequality between price and marginal revenue.  Also, note how monopoly power in the goods and services market can carry over into the labor or resources market partly because demand for labor is derived from demand for a good.

  • 5.2.7 Approaches toward Profit Maximizing Output Level  
    • Assessment: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Answers for Monopoly Questions”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Answers for Monopoly Questions” (PDF)
       
      Instructions: When you click on the link above, you will be directed to the problems and answer section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the link titled “Answers for Monopoly Questions” under the “Problems and Answer Sheets” heading.  Please complete the set of questions and compare them with the answers in view.  Your participation in this assessment allows for an additional progress check against the learning outcomes for Unit 5.
       
      This assessment should take approximately 30 minutes to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpages above.

  • 5.3 Actions under an Oligopolistic Structure  
  • 5.3.1 Prisoner's Dilemma  

    Note: This topic is covered in part by the PDF documents assigned below subunit 5.3.  Focus your attention on how collusion or cooperation among individuals or firms can result in higher gains than in cases where those parties operate in isolation.  Take approximately 30 minutes to review this material to cover the topics in sub-subunits 5.3.1 through 5.3.5.  Make sure to read the notes below each sub-subunit as these indicate what you should focus on when you review the readings.

  • 5.3.2 Interdependence, Cross-Price Elasticity of Demand, and Profits  

    Note: This topic is covered by the PDF documents assigned below subunit 5.3.  Focus your attention on how firms can behave, recognizing the amount of sales in a market is fixed and shared among a few firms; how the goods each sells can be a substitute or a complement in relation to the other firm’s goods; and how they can earn economic profits due to economies of scale, barriers to entry, and other factors.

  • 5.3.3 Nonprice Competition  

    Note: This topic is covered by the PDF documents assigned below subunit 5.3.  Focus your attention on competition that arises from product differentiation through brand loyalty and large amounts of advertising.

  • 5.3.4 Price Leadership  

    Note: This topic is covered in part by the PDF documents assigned below subunit 5.3.  Focus your attention on how oligopolistic firms follow the other firm’s price decreases but not their price increases.

  • 5.3.5 Kinked-Demand Curve  

    Note: This topic is covered by the PDF documents assigned below subunit 5.3.  Focus your attention on the shape of the demand curve under a price leadership scenario in which only a few firms serve the market.

  • Unit 5 Discussion Board  
    • Activity: The Saylor Foundation’s “ECON203: Unit 5 Discussion Questions”

      Link: The Saylor Foundation’s “ECON203: Unit 5 Discussion Questions” (HTML)
       
      Instructions: After reviewing the unit materials, please post and respond to the following topics on the course discussion board.  Feel free to start your own related posts and respond to other students’ postings as well.
       
      1. What benefits arise from scenarios that involve interdependence, prisoner’s dilemma, and other factors specific to an oligopolistic market structure?
      2. Provide a list of examples or trends in the area where you reside that suggest the presence of economic profits.
      3. How does the connection between price and marginal revenue vary between perfectly competitive market structures and imperfectly competitive market structures?
       
      Posting and responding on the discussion board should take approximately 5 hours to complete.

  • Unit 6: Advanced Topis on Regulation and Pricing Methods  

    This last unit is concise and focuses your attention on methods of pricing pursued by firms in accordance with varying levels of oversight from regulatory agencies.  It will require you to compare and contrast those methods and explain the causes and consequences of each method.  Firms that engage in price discrimination can draw attention to themselves, though they operate by segmenting customers and charging them different prices in relation to their demand elasticities. 
     
    Air travel provides a fine example of price discrimination.  Nearly everyone onboard an aircraft travelling at any given time between two geographic points pays a different airfare or ticket price.  Some people book their flights weeks in advance and others hours in advance of the departure date and time.  Those who travel as part of their business endeavors typically need to be somewhere at a specific time with little advance notice, whereas others such as those who travel by air for vacation or leisure typically have longer periods for planning their trips.  Based on your understanding of elasticity from previous units, you will probably have a good idea about which type of traveler is more sensitive to changes in the airfare.  Again, this method of pricing rarely draws attention from regulators or government agencies.
     
    Some methods of pricing outputs are determined through oversight from governmental and regulatory agencies.  A company that produces electricity, natural gas, or drinking water is known as a natural monopoly.  Its inputs are natural resources, and it is the only firm within a geographic area allowed to produce outputs such as those made available by utility companies.  Their outputs need to be available in terms of peak load demand, which occurs when many households and businesses are using a specific resource (electricity, for instance) at the same time of day.  In the absence of regulation, monopolists will produce at a profit maximizing level of output that is lower than a perfectly competitive firm would produce; brownouts or blackouts would likely occur without regulations governing output levels.  Two methods are widely employed by regulators that prompt the utility provider to produce more than they would in the absence of regulations. This final unit concludes with coverage of how output levels correspond with regulated prices or rates.

    Unit 6 Time Advisory   show close
    Unit 6 Learning Outcomes   show close
  • 6.1 Causes and Consequences of Price Discrimination  
  • 6.2 Economic Regulation of Natural Monopolies by Government  
  • 6.2.1 Marginal Cost Pricing  

    Note: This topic is covered by the reading assigned below subunit 6.2.  Pay attention to the first four paragraphs of the article that discuss how margin cost pricing connects to a monopoly’s decision-making.  In essence, regulators take into account that price is equal to marginal cost in perfect competition and can apply that equation to regulated monopolies in order to set their rates.  Take approximately 15 minutes to review this material for sub-subunit 6.2.1 and 6.2.2.

  • 6.2.2 Fair Return Pricing  

    Note: This topic is covered by the reading assigned below subunit 6.2.  Regulators can set rates recognizing monopolies need to earn a normal profit, but not an economic profit.  They set the rate by taking into account the relationships among price, marginal revenue, and demand as they exist in perfect competition.  Pricing or rate setting in this instance focuses on the intersection of the marginal cost and demand curves.  In essence, regulators can apply information to regulated monopolies in order to set their rates.

  • Unit 6 Assessment  
    • Assessment: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Sample Exam”

      Link: Boise State University: R. Larry Reynolds’ Intermediate Microeconomics: “Sample Exam” (PDF)

      Instructions: When you click on the link above, you will be directed to the problems and answer section of R. Larry Reynolds’ Intermediate Microeconomics.  Click on the “Sample Exam” link to download the PDF (12 pages) and complete the assessment (91 questions).  Check your answers against those highlighted for each question.
       
      This assessment should take approximately 2 hours to complete.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Activity: The Saylor Foundation’s “ECON203: Unit 6 Discussion Questions”

      Link: The Saylor Foundation’s “ECON203: Unit 6 Discussion Questions” (HTML)
       
      Instructions: After reviewing the unit materials, please post and respond to the following topics on the course discussion board.  Feel free to start your own related posts and respond to other students’ postings as well.
       
      1. How does price discrimination relate to price elasticity of demand?
      2. Under peak load demand situations, what results are likely from the profit maximizing orientations of unregulated natural monopolies?
      3. Does fair return pricing or marginal cost pricing regulation produce a larger amount of output?
       
      Posting and responding on the discussion board should take approximately 5 hours to complete.

  • Final Exam  
    • Final Exam: ECON203 Final Exam

      Link: The Saylor Foundation's ECON203 Final Exam

      Instructions: You must be logged into your Saylor Foundation School account in order to access this exam. If you do not yet have an account, you will be able to create one, free of charge, after clicking the link.

      The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

      Submit Materials


« Previous Unit Next Unit » Back to Top