Stern School of Business

Firms and Markets

Prof. Nicholas Economides




B01.1303.31, Fall 2011
Tuesdays 6:00-9:00 pm, Rm 2-90
Office Hours: Mon. 5-6pm, Tue. 5-6pm Wed. 5-6pm, KMEC 7-84
Voice: (212) 998-0864, Fax: (212) 995-4218

course page: 


The aim of this course is to teach you the basics of how markets work. We learn how individuals make purchasing decisions, how firm decide how much to produce, and how market structure affects these decisions. We also learn what are the best outcomes for the companies and society as a whole. We apply these concepts to a wide range of market situations, including decisions under uncertainty, insurance, markets with subsidies, markets with entry barriers, and the EU debt crisis. We also discuss high technology markets with “network effects,” where selling more units can make each unit more valuable.

You will need to remember/learn some basic math skills, such as making diagrams in two dimensions (X-Y space), basic algebra calculations, and basic calculus. The focus of the course is not on the math, but you need the math to grasp better and apply the concepts taught in the class to the weekly exercises, the midterm and the final. Do not delay getting up to speed with the math skills.

Text and Notes

R. S. Pindyck and D. L. Rubinfeld, Microeconomics, Seventh Edition, (Pearson, 2008). There is an accompanying Study Guide with additional exercises and review materials (not required).

My notes, at and distributed the first day of classes, provide you with a detailed outline of the material and are complementary to the main text. You will also be receiving occasional supplementary notes and solved exercises. Articles from the Financial Times, the NY Times, the Wall Street Journal, and the Economist will illustrate the application of our course to current events.


There will be weekly homeworks. They will be handed in and graded. Homeworks will count for 10% of the total grade. Outlines of solutions will be distributed. Your tutor, Adam Redstone, (734) 904-1224, will be available to help you with the exercises. You will have a chance to discuss the weekly exercises with him and get prepared to solve them. Your tutor will hold a weekly review session right after class (starting on the second week of classes). There will be no class on 11/22 (Thanksgiving). The midterm (likely date November 1, 2011) and the final exam (December 13. 2011) will consist mainly of exercises of the same sort as the ones in the homeworks.  The midterm and the final will count for 45% of the final grade each. The final exam will not be cumulative.

Outline and Reading Assignments

You are expected to read the assigned chapters before the lecture. The assignments correspond roughly to weeks.

1. Consumption Choices of the Individual. Chapter 3.

2. Individual and Market Demand. Chapter 4, except 136-140. Chapter 2, pp. 34-61.

3. Choice under Uncertainty. Chapter 5.

4. Technology of Production. Chapter 6. Production Costs. Chapter 7.

5. Profit Maximization. Competitive Market Supply. Chapter 8.

6. Supply and Demand in Competitive Markets. Chapter 9.

7. Monopoly. Chapter 10, except pp. 373-381. Price Discrimination. Chapter 11. Midterm Exam.

8. Game Theory. Strategic Choice. Chapter 13. Oligopoly. Chapter 12, pp. 449-475. Monopolistic competition. Chapter 12, pp. 443-448.

9. Pricing of Factors of Production. Labor Supply. Chapter 14. Pricing of Capital. Evaluation of Projects. Chapter 15. EU debt crisis.

10. Economic Efficiency. Chapter 16.

11. Failures of Competitive Markets. Asymmetric Information. Chapter 17.

12. Positive externalities in high technology markets. Networks. Microsoft case.

Classroom Behavior


Class presence is required. Please come to class on time. If you come late, enter very quietly. Bring with you and display the large name tags provided by the School.