micro19

Microeconomics, 212.201, Fall 2019

Course web page

https://sites.google.com/site/oyvindthomassen/micro19

Time and place

Monday 14.00 - 16.50, room 111, building 16.

First lecture Monday 2 September

Exam dates (exams will take place during class hours)

Mid-term exam Monday 21 October 14.00 - 16.00. 

• • The exam will take place simultanously in two rooms: 16-111 (the usual room) and 101-220 (in the Asia Center building in front of building 16). 

  • Check this list to see which of the two rooms you should be in.

  • Make sure you know in advance where to go, and aim to be in the exam room by 13.55, to ensure that the exam can start on time. 

  • You may bring a non-programmable calculator. You are not allowed to use your phone as a calculator. 

  • Other than calculator and writing utensils (and drink / food if absolutely necessary) you may not keep any personal items within reach during the exam. 

  • Exam questions will be similar to the 'Problems' in the textbook, although there may also be some problems more like the ones called 'Analytical Problems' in the textbook. 

  • Any concept that has not been mentioned in the lectures will almost certainly not be needed for the exam.  

  • In the exam, each question 1(a), 1(b), ... , 2(a), 2(b), etc. will have the same weight. 

Final exam Monday 9 December

Content

This course is intended as a somewhat technical introduction to some core topics of microeconomics: such as consumer theory, producer theory, competitive markets and imperfect competition.

Prerequisites

It is useful to know the basics of constrained optimization (Lagrangian function etc.), for instance from the course Mathematics for Economists (212.214). Differentation / partial derivatives will be used freely in the course. It is also useful, but not necessary, to have some previous knowledge of microeconomics.

Grading

Course grade = max { 0.5*mid-term score + 0.5*final exam score, 0.4*mid-term score + 0.6*final exam score }.

Attendance

You are expected and encouraged to come to all lectures, but there will be no attendance check.

Reading

The lectures will be based on

Nicholson and Snyder: Microeconomic Theory. Basic Principles and Extensions. 12th / 11th / 10th edition.

You may be able to find pdf of the 11th or 10th edition on the internet by googling the title.

(Note that there is different textbook by the same authors called Intermediate Microeconomics. Make sure you do not buy that book by mistake.)

Lecture Plan

Chapter and page numbers refer to Nicholson and Snyder: Microeconomic Theory. Basic Principles and Extensions. 11th edition. In the 12th and 10th editions, chapter numbers are the same, but page numbers slightly different.

2 September - Lecture 1

Chapters / topics:

Ch. 3 and 4. Preferences, utility maximization.

Pages to read:

• • 89 - 106 (all of ch. 3)

  • 117 - 128 (from ch. 4)

Covered in the lecture:

• preferences

• utility function

• indifference curve

• marginal rate of substitution (MRS)

• interpretation of diminishing MRS

• utility maximization using Lagrangian implies that MRS = ratio of prices

• graphically, slope of indifference curve equals slope of budget line

• some intuition for why (x1,x2) where MRS > price ratio or MRS < price ratio cannot be optimal

• exceptions: if MRS is not diminishing everywhere, or if it is optimal to choose a zero quantity of one good

• solve utility maximization problem for simple Cobb-Douglas utility function

9 September - Lecture 2

Chapters / topics: Demand functions, consumer surplus.

Ch. 4, 5 and 6.

Pages to read:

• • 128 - 135 (the rest of ch. 4)

  • 145 - 157 (until 'Shepard's lemma')

  • 158 - 159

  • 163 - 164 (from 'Demand elasticities')

  • 169 - 174 (from 'Consumer surplus'; skip 'Using the compensated demand curve to show CV'; until 'Revealed preference ...' )

  • 190 (only 'Gross (Marshallian) substitutes and complements')

Covered in the lecture:

• a bit more on why MRS = price ratio

• indirect utility function

• solving the expenditure minimization problem using Lagrangian

• expenditure function

• (Marshallian) demand function and demand curve

• compensated (Hicksian) demand function

• substitution effect and income effect

• compensating variation

• consumer surplus

• gross substitutes and complements

16 September - Lecture 3

Chapters / topics:

Ch. 9, 10, 11: Production, cost minimization, profit

Pages to read:

• • 303 - 308 (only first paragraph of 'Reasons for a diminishing RTS')

  • 310 (definition only)

  • 316  - 319

  • 333 - 342 (first paragraph only on p. 342)

  • 345 - 347 (Example 10.2)

  • 355 (from 'Short-run, long-run distinction') - 362

  • 371 - 377

Covered in the lecture:

• production function

• isoquant

• marginal rate of technical substitution (RTS)

• returns to scale

• (economic) cost

• cost minimization (for a given level of output)

• total, average and marginal cost functions

• MC = AC if and only if AC'(q)=0

• short-run cost minimization (capital input fixed)

• (economic) profit

• MR = MC at profit maximizing choice of output

23 September - Lecture 4

Chapters / topics:

Ch. 11 and 12: Market demand and supply, equilibrium, producer surplus

Pages to read:

• • 380 - 389 (only until 'Profit maximization and input demand')

  • 409 - 421

  • 425 - 430

  • 435 - 437

Covered in the lecture:

• market supply function

• market demand function

• perfect competition

• short-run equilibrium

• long-run equilibrium

• producer surplus

• profit function

30 September - Lecture 5

Chapters / topics:

Ch. 11, 14 :  Lerner index, monopoly

Pages to read:

• • 377 - 380

  • 501 - 509

  • 513 - 517

Covered in the lecture:

• elasticity of demand

• MR = p(1 + 1/e)

• Lerner index: (p-mc)/p = 1/|e|

• monopoly

• perfect price discrimination

• third-degree price discrimination

7 October - Lecture 6

Chapters / topics:

Ch. 8: Game Theory

Pages to read: 

• • 251 - 260

  • 265 - 268 (Continuum of actions)

Covered in the lecture:

• basics of a game: players, strategies, payoffs, normal form

• prisoners' dilemma

• best response

• Nash equilibrium

• underlining best-response payoffs 

• dominant strategy and dominant strategy equilibrium

• tragedy of the commons / sheep grazing game (continuous actions)

• ballet/boxing game (no dominant strategy)

• rock/paper/scissors game (no Nash equilibrium)

14 October - Lecture 7

Chapters / topics:

Ch. 8: Game Theory

Pages to read: 

• • 260 - 265

  • 268 - 277

Covered in the lecture:

• mixed strategies

• sequential ballet/boxing game

• normal form of sequential game

• extensive form

• subgame perfect equlibrium

• backward induction

• repeated games

• infinitely repeated games

21 October - Mid-term exam

Solutions for the exam

28 October - Lecture 8

Chapters / topics:

Ch. 15: Imperfect Competition

Pages to read:

• • 531 - 540 (until 'Capacity Constraints')

  • 541 - 547 (from 'Product Differentiation' until 'Tacit Collusion')

Covered in the lecture:

• Bertrand (two firms with identical products choose prices)

• Cournot (two firms with identical products choose output quantities)

• Bertrand with differentiated products

• Hotelling (ice cream sellers on a beach) price game with fixed locations

• Hotelling two-stage game (stage 1: location; stage 2: prices)

4 November - Lecture 9

Chapters / topics:

Ch. 15: Imperfect Competition

Pages to read:

• • 551 - 559 (until 'Signaling')

Covered in the lecture:

• Stackelberg model (sequential quantity game)

• Price leadership model (sequential price game)

• Derivative of pi_1 wrt. q_1 in Stackelberg game is positive at Cournot quantities

• Derivative of pi_1 wrt. p_1 in price-leadership game is positive at Differentiated Bertrand prices

• Stackelberg game with entry deterrence (when follower incurs sunk cost at entry)

• Some more details about two-stage Hotelling game: why firms locate on the edge, or at a=-L/4 and b=5L/4 if not constrained to be on the beach. 

11 November - Lecture 10

Chapters / topics:

Ch. 18: Asymmetric Information

Pages to read: 

• • 641 - 650

Covered in the lecture:

• Hidden action (or moral hazard) model: owner-manager

18 November - Lecture 11

Chapters / topics:

Ch. 18: Asymmetric Information

Pages to read:

• 655 - 663

Covered in the lecture: 

• Hidden type (or adverse selection) model: nonlinear pricing

25 November - Lecture 12

Chapters / topics:

Ch. 8: Game Theory (some topics not covered before mid-term exam). [Ch. 17 will be covered 2 December instead.]

Pages to read:

• • 277 - 287 (from 'Incomplete Information' until end of Example 8.8, but focus on Examples 8.7 and 8.8. You may skip example 8.6.)

Covered in the lecture: 

• Sheep herding (tragedy of the commons) when one player has private information about his or her type

• Bayes' rule for updating beliefs in signalling game

• General definition of separating, pooling and hybrid equilibrium

• Signalling model: job market signalling (applicant has private information about skill level) - only finding the separating equilibrium (not pooling or hybrid equilibria)

2 December - Lecture 13

Chapters / topics:

Ch. 17: Capital and Time

Pages to read:

• • 631 - 635 (Appendix 'Mathematics of Compound Interest', not including 'Duration')

  • 607 - 612 (particularly example 17.1)

9 December - Final exam

Solutions for the exam

The questions in the final exam will all be mainly about material covered in Lectures 8 - 13 (after the mid-term), but some parts of the material covered in lectures 1 - 7 might still be relevant. So focus on the second half of the course when preparing for the exam, but make sure you don't completely forget about the first half. 

The exam will take place 14.00 - 16.00 in the same rooms as before - please go to the room where you took the mid-term exam.