Microeconomics

Aims of the course

The primary objective of the course is to familiarize students with the microeconomic paradigm, and develop an appreciation of the usefulness (and limitations) of microeconomic analysis. A further goal of the course is to develop and exercise students’ ability to use economic analysis in examining applied issues, and, more generally, to help students acquire formal modeling skills—the ability to reduce real-world problems to useful and mathematically tractable representations.

In this course we will develop concepts and skills useful for advanced analysis in all areas of economics

Course syllabus

1. Consumer Theory
• Preferences (MWG 1A-B)
• Consumption space, budget constraint, from preferences to utility, marginal rate of substitution, (MWG 2.A-D, 3.A-C)
• Utility maximization, Marshallian demand, indirect utility function, comparative statics for Mashallian demand (MWG 3.D, 2.E)
• Expenditure minimization, Hicksian demand, expenditure function, Shephard's lemma, Slutsky matrix (MWG 3.E-F)
• Duality, Roy’s identity, Slutsky equation, wealth and substitution effects (MWG 3.G)

2. Producer Theory
• Production sets and their properties (MWG 5A, 5B)
• Profit maximization, output supply, input demands, profit function (MWG 5.C)
• Cost minimization, conditional factor demands, cost function (MWG 5.C-D)

3. Choice under uncertainty
Expected utility theory (MWG 6A, 6B)
Money Lotteries and Risk Aversion (MWG 6C)
Comparison of Payoff Distributions in Terms of Return and Risk (MWG 6D)

4. Partial equilibrium in competitive markets
Pareto optimality and Competitive Equilibria (MWG 10A, 10B)
Partial Equilibrium Competitive Analysis (MWG 10C)
Welfare Analysis in the Partial Equilibrium Models (MWG 10D, 10E, 10F)

5. General Equilibrium
• Introduction (MWG 10.A-B,16.A-B)
• Intuition: core and equilibria (MWG 18.A-B), exchange economy, Robinson Crusoe economy, 2x2 production model (MWG 15.A-D)
• Construction and existence (MWG 17.A-C)
• Pareto efficiency and welfare theorems (MWG 16.C-F)

6. Inefficiencies
• Externalities (MWG 11.A-B, D)
• Public Goods (MWG 11.C)

7. Game Theory
• Basic elements of noncoperative games (MWG 7.A-E)
• Simultaneous-move games, dominant and dominated strategies, rationalizable strategies, Nash equilibrium (MWG 8.A-D)
• Games of incomplete information and Bayesian Nash equilibrium (MWG 8.E)
• Trembling-hand perfection (MWG 8.F)
• Dynamic games, sequential rationality, subgame perfection, weak-perfect Bayesian equilibrium, sequential equilibrium (MWG 9.A-C)

8. Information Economics
Asymmetric information and adverse selection (MWG 13A, 13B)
Signaling and screening (MWG 13C, 13D)
Principal agent problem (MWG 14)

Course director(s)