Microeconomics III

Credits: 3 (45 hours)

🧭 Course Description

Microeconomics III is an upper-intermediate course designed to bridge standard intermediate microeconomics and advanced analytical treatments at the level of Advanced Microeconomic Theory. The course develops a rigorous understanding of individual decision-making and market interactions using formal tools of modern microeconomic theory.

The first part of the course focuses on consumer theory, emphasizing preference representation, utility maximization, duality, and welfare analysis. Students are trained to move beyond graphical intuition toward analytical and proof-based reasoning commonly used in advanced microeconomics.

The second part introduces producer theory and market structure, including production and cost functions, competitive equilibrium (partial and general equilibrium), and monopoly behavior. Together, these topics provide a unified framework for analyzing economic efficiency, market outcomes, and policy implications.

The course places strong emphasis on developing mathematical intuition, comparative statics, and the ability to connect economic theory with formal modeling.

🎯 Learning Objectives

By the end of this course, students will be able to:

• Formally represent preferences and analyze consumer choice using optimization techniques

• Decompose demand responses into substitution and income effects

• Evaluate welfare changes using rigorous measures such as compensating and equivalent variation

• Analyze decision-making under uncertainty using expected utility theory

• Understand firm behavior through production and cost minimization

• Characterize competitive equilibrium in both partial and general equilibrium settings

• Analyze monopoly behavior and pricing strategies, including price discrimination

• Transition from computational approaches to more abstract, proof-based reasoning in microeconomic theory

🧱 Course Structure (45 Hours)

🔷 Part I: Consumer Theory (21 Hours) (Instructor: My responsibility)

This part develops the analytical foundations of individual choice, with the explicit goal of preparing students for advanced microeconomic theory.

Lecture 1: Preferences and Utility

• Preference relations: completeness, transitivity, continuity, monotonicity, convexity

• Utility representation

• Quasi-concavity and economic meaning

Lecture 2: Consumer Choices

• Utility maximization problem (UMP)

• Marshallian demand

• Indirect utility function

• Duality (introductory level)

Lecture 3: Substitution and Income Effects

• Hicksian demand

• Slutsky equation (derivation and interpretation)

• Comparative statics

Lecture 4: Measuring Welfare Changes

• Compensating variation (CV)

• Equivalent variation (EV)

• Consumer surplus vs exact welfare measures

• Applications to policy analysis

Lecture 5: Choices under Uncertainty

• Expected utility theory

• Risk aversion and risk premium

• Insurance and basic portfolio choice

• Introduction to state-contingent commodities

🔷 Part II: Producer Theory and Market Structure (24 Hours)

(This part is covered by another instructor)

Lecture 6: Production Functions

• Technology and production sets

• Returns to scale

• Marginal products

Lecture 7: Cost Minimization

• Cost functions

• Shephard’s Lemma

• Duality in production

Lecture 8: Partial and General Equilibrium

• Competitive equilibrium

• Efficiency and welfare theorems

• Edgeworth box and exchange economy

Lecture 9: Monopoly

• Profit maximization

• Market power and deadweight loss

Lecture 10: Price Discrimination and Bundling

• First-, second-, and third-degree price discrimination

• Bundling strategies

📚 Textbooks

Main Text

• Espinola-Arredondo, A., & Muñoz-Garcia, F. (2020). Intermediate Microeconomic Theory: Tools and Step-by-Step Example. The MIT Press.

Supplementary Texts

• Nicholson, W., & Snyder, C. (2025). Microeconomic Theory: Basic Principles and Extensions (13th ed.). Cengage.

• Jehle, G. A., & Reny, P. J. (2011). Advanced Microeconomic Theory (3rd ed.).

• Muñoz-Garcia, F. (2017). Advanced Microeconomic Theory: An Intuitive Approach with Examples. The MIT Press.

💡 Teaching Philosophy (Embedded Motivation)

This course is designed to bridge the gap between computational intermediate microeconomics and the more abstract, proof-oriented approach of advanced theory. Emphasis is placed not only on solving problems but also on understanding the structure of economic models, the role of assumptions, and the logic behind key results.

Students are gradually guided from graphical and numerical intuition toward a deeper analytical framework, preparing them for graduate-level coursework and research in microeconomics.