NATIONAL LAW SCHOOL OF INDIA UNIVERSITY, BANGALORE

I YEAR - I TRIMESTER , July - 2022

ECONOMICS 1

Description of the course

(This is a core course mandated by the BCI)
It is an introductory course to microeconomics with applications to law and policy.
Throughout we shall see how microeconomics can help you to understand individuals and
firms attempting to behave in an optimal manner under constraints and therefore be able to
predict outcomes. In the process we shall learn how economics can be used to understand
all kinds of choices or decisions made by diverse micro units - families, political parties,
entrepreneurs, law breakers, defence strategists and even yourself in deciding on law as a
career - in fact, it presents a whole new way of observing life around us! Of course, for law
students it gives both a method and methodology to analyze the instrument of law. The
course while involving case studies, online discussions and exercises will be predominantly
lecture based. The blog site that we shall use for our online discussions is
http://wwecon.blogspot.com/.

Course Text: 1. Pindyck and Rubinfeld (2017) – Micro Economics (8th ed.), Prentice Hall,
N.Delhi
Each student is required to have a copy of this book.
Additional readings will be assigned for each topic. These are application-based readings
for which we will have class room or online discussions. Further there will be exercises in
which you will learn to use data for economic analysis linked to that specific topic.

Evaluation Scheme Marks

a) Test: End -Trimester 60

b) Project 30
c) Viva 10
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Total 100
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Course Outline

Module 1 Reading
Introduction to Economics and its relevance for the Chapter 1
study of law.
Lecture 1
What is Economics – Microeconomics and Macroeconomics
- scarce resources and choices – methods of allocation of
resources (market vs Government) – the role of prices (real
and nominal prices) – positive and normative analysis -
relevance of microeconomics for decision making

Readings:
What Is Economics? The Library of Economics and Liberty
 https://www.econlib.org/library/Topics/College/whatisecono
mics.html
Paul H Robin, Law and Economics, The Library of
Economics and Liberty
https://www.econlib.org/library/Enc/LawandEconomics.html

Exercise:
Find the real price trend of an item on Bengaluru’s iconic
Mavalli Tiffin Room’s menu and offer reasons for the same.

Module 2 The Market Mechanism

Chapter 2
Lecture 2
The basic forces of the market mechanism: supply and Pages 45 - 57
demand – shifts in demand and supply - market equilibrium
and changes in equilibrium – price elasticity of demand

Readings:
Petrol, diesel sales record strong growth in June, other fuels
rise too, Livemint, July 3, 2022
https://www.livemint.com/news/india/petrol-diesel-sales-
record-strong-growth-in-june-other-fuels-rise-too-
11656844214254.html

Exercise :
Use data of N95 masks over the past three years and
analyse factors influencing the long run equilibrium –
illustrate with supply and demand diagram.

Lecture 3
Linear demand curve - point and arc elasticity of demand -
short run and long run elasticities of demand – income Pages 58 – 72
elasticity - short run and long run supply elasticity –

Readings:
- Corona cess imposed on liquor resulted in 59%
decline in sales post lockdown: CIABC , Economic
Times, 02 August, 2020
https://economictimes.indiatimes.com/industry/cons-
products/liquor/corona-cess-imposed-on-liquor-
resulted-in-59-decline-in-sales-post-lockdown-
ciabc/articleshow/77314758.cms?from=mdr

Lecture 4
Predicting effects of changing market conditions – Pages 72 - 84
government interventions in the market

Readings:
Alberto Mingardi, ‘Italy’s Covid Price-Control Fiasco’
WSJ, May 18 , 2020
 https://www.wsj.com/articles/italys-covid-price-
control-fiasco-11589842827

Module 3 Consumer theory Chapter 3

Lecture 5
Consumer preference – Indifference curves – Utility Pages 91 – 109
functions- Budget constraints

Readings:
Facebook Tried to Make Its Platform a Healthier Place. It
Got Angrier Instead. WSJ, September 15, 2022
https://www.wsj.com/articles/facebook-algorithm-change-
zuckerberg-11631654215

Lecture 6
Consumer Choice – revealed preference theory – marginal
Utility Pages 110 – 124

Readings:

Geoff Donaker and Michael Luca,

Why COOs Should Think Like Behavioral Economists
Harvard Business Review, October 31, 2017
https://hbr.org/2017/10/why-coos-should-think-like-
behavioral-economists

Does Being Willing to Pay Mean You Like What You Buy?
Knowledge at Wharton, June 15, 2018
http://knowledge.wharton.upenn.edu/article/willingness-pay-
doesnt-always-equal-consumer-preference/

Exercise: Do internet privacy preferences ‘reveal

preference’?

Lecture 7
Chapter 4
Deriving Individual Demand curves – normal and inferior
goods – Engel curves – Income and Substitution Effect – Pages 135 – 148
Giffen good

Reading:
Justin Wolfers, The Rich vs Poor Debate: Are Kids Normal
or Inferior Goods? Blog , Freakanomics, June 10, 2011
https://www.freakonomics.com/2011/06/10/the-rich-vs-poor-
debate-are-kids-normal-or-inferior-goods/

Lecture 8
Deriving the Market Demand curve – elasticity of demand – Pages 149 - 162
consumer surplus – network externalities
 Reading:
- Moon, Alice and Nelson, Leif D.,
https://hbr.org/2019/06/when-tech-companies-
compete-on-their-own-platforms (October 19, 2015).
Full paper available at
https://ssrn.com/abstract=2676699

Module 4
Theory of the Firm – Production and Cost Chapter 6
Lecture 9
Production decision of a firm – production function – 215 -229
production with one variable input – law of diminishing
marginal returns – labour productivity

Lecture 10
Production with two variable inputs – isoquants – 230 – 240
diminishing marginal returns – production functions – returns
to scale

Readings:
Sarah Chaney Cambon, Long Drought in Productivity Could
Be Ending, WSJ, April 4, 2021
https://www.wsj.com/articles/u-s-s-long-drought-in-worker-
productivity-could-be-ending-11617530401

Lecture 11
The Cost of Production
Economic v accounting cost – opportunity cost – sunk cost – Chapter 7
cost in the short run - fixed and variable cost – marginal and
average cost 243 – 257

Readings:
Lawrence J. McQuillan, Economic Science, Sunk Costs, and
the Withdrawal of U.S. Troops from Afghanistan, The
Beacon(blogpost), July 16, 2021
https://blog.independent.org/2021/07/16/economic-science-
sunk-costs-and-the-withdrawal-of-u-s-troops-from-
afghanistan/

Exercise: Calculate the economic cost of your education in

NLSIU

Lecture 12
Cost in the Long run – Isocost line - cost minimizing choice 257 – 279
of inputs – expansion path – Long run costs – economies
and diseconomies of scale – economies of scope - dynamic
changes in cost
 Readings:
Nora Naughton, Stellantis Plans to Go Big on EVs. Here’s
What’s in Store, WSJ, July 8, 2021

Module 5
Theory of the Firm – Perfectly Competitive markets and Chapter 8
welfare analysis

Lecture 13

Profit maximization and competitive supply

The perfectly competitive market – MR and MC - Short run Pages 287 – 308
profit maximization – shut down point – short run supply
curve and elasticity of a firm and for the market - producer
surplus in the short run

Readings:

Omar Abdel-Baqui, Toy Prices Are Going Up Ahead of the

Holiday Season, WSJ, July 29, 2021

https://www.wsj.com/articles/toy-makers-scramble-as-
shipping-snarls-threaten-to-spoil-christmas-11627563777

Exercise:

BSE live – Understanding competitive market dynamics

https://www.bseindia.com/eqstreamer/StreamerMarketwatch
.html

Lecture 14
Long run equilibrium and profit maximization – economic
rent – producer surplus in the ‘long run’ – industry LR supply Pages 308 - 322
curve – Policy impact on cost
Interactive presentation: Enduring Ideas: The industry cost
curve , McKinsey , April 2009
https://www.mckinsey.com/business-functions/strategy-and-
corporate-finance/our-insights/enduring-ideas-the-industry-
cost-curve

Lecture 15 Chapter 9
Analysis of competitive markets

Price controls – ceiling and floor prices – market failures and Pages 325 – 339
 government interventions

Readings:

Pearl Liu, China goes back to rationing as authorities in

Wuhan introduce ‘housing ticket’ to cool surging property
prices , South China Morning Post, August 4, 2021

https://www.scmp.com/business/china-
business/article/3143641/china-goes-back-rationing-
authorities-wuhan-introduce

Lecture 16

Price supports – production quotas –– impact of tax and Pages 340 – 359
subsidy

Readings:

Bojan Pancevski and Laurence Norman, How Europe

Tripped in Covid-19 Vaccine Race, February 2, 2021, WSJ

https://www.wsj.com/articles/how-europe-tripped-in-covid-
19-vaccine-race-11612293218

Exercise: Calculate your fee subsidy and analyse the supply

side effect with a generalization for higher education

Module 6 Market structure and Competitive Strategy Chapter 10

Lecture 17 Page 363 - 376
Monopoly – Average and marginal revenue – choice of profit
maximizing output – pricing decision – effect of taxes –
multiplant firm
Readings:

- Christopher Mims, Tech's Titans Tiptoe Toward

Monopoly, WSJ, Jun 02, 2018
https://www.wsj.com/articles/techs-titans-tiptoe-
toward-monopoly-
1527783845?mod=djem_jiewr_EC_domainid

Lecture 18 Chapter 10

Monopoly power – rule of thumb for pricing – sources of Pages 376 – 390
monopoly power – social cost of monopoly power –
regulation of monopolies – natural monopoly
Readings:
Marc Jarsulic, Using Antitrust Law To Address the Market
Power of Platform Monopolies, Center for American
Progress, July 28, 2020

https://www.americanprogress.org/issues/economy/reports/
2020/07/28/488201/using-antitrust-law-address-market-
power-platform-monopolies/

'Gatekeeper' Tech Giants Face Massive Fines Under Digital

Markets Act , Business Plus , 25th March, 2022
https://businessplus.ie/industry-type/technology/digital-
markets-act-gatekeeper-tech-giants/

Lecture 19
Monopsony – monopsony power – antitrust/competition law Pages 390 – 400

Lecture 20
Pricing with monopoly power Chapter 11

Price discrimination - Types of price discrimination: First,

second and third-degree price degree – intertemporal price
discrimination - peak load pricing Pages 407 - 422

Readings:
- Bill de Blasio , Julie Menin, From Cradle to Cane:
The Cost of Being a Female Consumer , A Study of
Gender Pricing in New York City, New York City
Department of Consumer Affairs, December 2015.
(read pages 1 -14)
https://www1.nyc.gov/assets/dca/downloads/pdf/part
ners/Study-of-Gender-Pricing-in-NYC.pdf

- Lego proposes commitments to the Autorité to

modify its pricing policy, Autorité de la concurrence,
July 30, 2020
https://www.autoritedelaconcurrence.fr/en/press-
release/lego-proposes-commitments-autorite-modify-
its-pricing-policy

Lecture 21 Chapter 12
Pages 447 – 459
Monopolistic competition - features and equilibrium in the
short run and long run – economic efficiency of monopolistic
competition.

Oligopolistic competition – Cournot model

 Lecture 22

First mover advantage and Stackelberg Model – Bertrand Pages 459 - 465
model with homogenous and differentiated products -
introduction to cartels

Readings:

Surbhi Jain, Zomato share price hits new all-time high,

doubles from IPO price; UBS says ‘buy’, sees 12% rally,
The Financial Express, July 27, 2021

https://www.financialexpress.com/market/zomato-share-
price-hits-new-all-time-high-doubles-from-ipo-price-ubs-
says-buy-sees-12-rally/2298367/

Lecture 23
Chapter 13
Game theory and competitive strategy
Pages 483 - 494
Cooperative and non-cooperative games – dominant
strategy equilibrium - Nash equilibrium – maximin and
minimax strategies – mixed strategy Nash equilibrium

Readings:

Willy Shih, Is It Time to Rethink Globalized Supply Chains?

MIT Sloan Management Review, March 19, 2020

https://sloanreview.mit.edu/article/is-it-time-to-rethink-
globalized-supply-chains/

Lecture 24 and 25

Repeated Games – extensive form of game – threats

commitments and credibility – bargaining strategy Pages 494 – 505

Readings:

- Randal C. Picker – “An Introduction to Game Theory

and the Law” available at

http://www.law.uchicago.edu/files/files/22.Picker.Intro
Game.pdf

Lecture 26
Module 7 Chapter 14
Market for factor inputs (Labour or Capital - choice class)
Pages 525 – 533
Competitive factor markets – demand for factor with one
variable input – demand for factor inputs with multiple
 variable inputs – market demand

Lecture 27
Pages 533 – 551
Supply of inputs – equilibrium in a competitive market –
economic rent – monopsony power – average and marginal
expenditure – factor markets with monopoly power

Reading:

Uber Eats-Amita Gupta case calls for gig worker law reform:
Study, Business Standard, May 21, 2022

https://www.business-standard.com/article/companies/uber-
eats-amita-gupta-case-calls-for-gig-worker-law-reform-
study-122053100358_1.html

Module 8
Lecture 28 and 29

Behavioural Economics
9th edition
Chapter 19
Readings:
Pages 713 - 733
1. Sendhil Mullainathan and Richard H. Thaler, How
Behavioral Economics Differs from Traditional Economics ,
The Library of Economics and Liberty

https://www.econlib.org/library/Enc/BehavioralEconomics.ht
ml

2. Michael Luca and Fiona Scott Morton, Do Your Digital

Design Choices Take Advantage of Customers? Harvard
Business Review, August 23, 2021

https://hbr.org/2021/08/do-your-digital-design-choices-take-
advantage-of-customers
Other useful links for project work:
www.nber.org
www.economist.com
http://www.law.uchicago.edu/lawecon/workingpapers
http://encyclo.findlaw.com/
wsj.com

(T.S. SOMASHEKAR)