Equilibrium and Efficiency
Textbook Chapter: Chapter 2
MobLab Game: Competitive Market
Key Teaching Points:
- The “invisible hand” of the market: how individual profit maximization leads to competitive market equilibrium.
- Price discovery: the equilibrium market-clearing price results from the valuations of different buyers and costs of different sellers.
- Gains from trade (i.e., consumer and producer surplus).
- Shifts in either supply or demand change equilibrium outcomes.
Utility Maximization
Textbook Chapter: Chapter 3
MobLab Game: Consumer Choice: Cobb-Douglas
Key Teaching Points:
- Become familiar with the Cobb Douglas utility function.
- Monotonic transformations of a utility function do not affect the utility-maximizing consumption bundle.
- Utility maximization can be achieved by sequentially choosing the item with the highest marginal utility per dollar.
Tradeoffs Involving Risk and Time
Textbook Chapter: Chapter 5
MobLab Game: Bomb Risk-Game
Key Teaching Points:
- Helps the player understand expected value and thinking on the margin.
- Helps a player understand her own preferences towards risk, and how risk attitudes vary across a population.
Firm Behavior in a Competitive Market
Textbook Chapter: Chapter 8
MobLab Game: Production, Entry & Exit
Key Teaching Points:
- Short run profit maximization involves thinking at the margin.
- In the long run equilibrium of a competitive market with identical firms, all firms earn zero economic profits.
Market Interventions
Textbook Chapter: Chapter 9
MobLab Game: Competitive Market (with interventions)
Key Teaching Points:
- Government interventions (per-unit taxes, subsidies, price ceilings and floors) alter equilibrium outcomes.
- Equilibrium outcomes do not depend on whether buyers or sellers pay the tax.
- The difference between tax incidence and who pays the tax.
- Relative elasticities determine incidence of a tax or subsidy.
- Excess supply (price floors) and excess demand (price ceilings).
- The efficiency implications of government interventions.
Monopoly Pricing
Textbook Chapter: Chapter 10
MobLab Game: Cournot (with Group Size=1)
Key Teaching Points:
- Monopolies restrict output in order to increase price.
- The tension between the quantity price effects of increased output.
Oligopoly and Collusion
Textbook Chapter: Chapter 12
MobLab Game: Cournot
Key Teaching Points:
- The underlying logic of the Cournot model: how market price is determined by aggregate output.
- The equilibrium outcomes of Cournot competition.
- Repeat interaction may lead to collusive behavior.
Game Theory
Textbook Chapter: Chapter 13
MobLab Game: Prisoner’s Dilemma
Key Teaching Points:
- Key features of games: payoff matrices, best responses and dominant strategies.
- Identification of the Nash equilibrium.
- The (sometimes) conflicting incentives of cooperation and self-interest.
- Repeated play may lead to more cooperative outcomes.
Unemployment
Textbook Chapter: Chapter 14
MobLab Game: Simple Labor Market
Key Teaching Points:
- When a perfectly competitive market determines wages, the equilibrium wage (per unit of labor) is equal to the value of the marginal product of labor of the last worker hired.
- Employment levels are determined by both the supply and demand of labor.
- Policies such as a minimum wage or unemployment insurance affect structural unemployment.
Asset Valuation
Textbook Chapter: Chapter 15
MobLab Game: Bubbles and Crashes
Key Teaching Points:
- Highlights the determinants of an asset’s value: income generated from interest and dividends as well as resale value.
- Shows how asset bubbles may develop even with complete information.
Asymmetric Information
Textbook Chapter: Chapter 17
MobLab Game: Market for Lemons
Key Teaching Points:
- Experience in a market with asymmetric information.
- Asymmetric information may lead to adverse selection and market failure.
Externalities
Textbook Chapter: Chapter 18
MobLab Game: Externalities with Policy Interventions
Key Teaching Points:
- With externalities, the equilibrium of a competitive market without interventions is inefficient.
- By reducing transactions, a tax can increase efficiency (total surplus) in a market with a negative externality
- Marketable permits for an activity generating a negative externality leads to efficiently reducing that activity.
Public Goods
Textbook Chapter: Chapter 18
MobLab Game: Public Good: Linear
Key Teaching Points:
- Highlights the features of public goods: non-rival and non-excludable.
- Demonstrates the distinction between private and social benefits of public goods.
- Shows how individual profit maximization leads to the free-rider problem.