75231 - Microeconomics (B.A.)

Learning outcomes

This course aims to provide the theoretical basis for the study of the behavior of economic agents (consumers and businesses) and their rational decisions in a market economy. Translating into mathematical language, the rational choice is represented by the maximization of a function that represents the objectives of each agent.

The economic analysis will primarily focus on the study of the market equilibrium, defined as a situation of reciprocal compatibility among the decisions taken by the agents. The implications in terms of price and equilibrium quantity, and therefore profits for the companies and satisfaction for consumers, will crucially depend on the market structure. Perfect competition, monopolistic competition, oligopoly and monopoly are the four main market structures that will be covered in the course. Moreover, as the effects of the interdependence between the decisions of different subjects cannot be neglected, the course devotes ample space to game theory, a discipline that is concerned with the strategic interaction among agents. From this theory, participants will be provided with the essential tools, which are applicable in both  economic policy (strategic interaction between firms) and political-institutional policy (coordination problems in international relations). From the economic point of view, one of the topics to be analyzed concerns competition policy, in particular the Antitrust and liberalization policies.

The last part of the course will be devoted to the analysis of general economic equilibrium. On the one hand, we will examine the desirable characteristics of market equilibrium, and the other, the so-called "market failures" which arise from information asymmetries, (negative) externalities and public goods. The course will conclude with a comprehensive discussion of R&D and innovation, environmental policy, and energy policy.

Course contents

Programme Outline

1. Introduction: Markets and Prices (lessons 1-2)

·         Introduction to microeconomics. Positive versus normative analysis, the use of economic models. E ndogenous and exogenous variables, stocks and flows (PR, Chapter 1).

·         Brief introduction to mathematics. (online material to be provided).

·         Market demand, supply and equilibrium. Comparative statics. Elasticities of supply and demand. Substitute, complementary and independent goods. Short-run versus long-run elasticities. Price control (PR, Ch. 2, excluding 2.6).  

2. Producers, Consumers and Competitive Markets (lessons 3-5)

·         Consumer preferences, marginal utility, marginal rate of substitution. Budget constraints. Consumer choice (PR, Ch. 3, excluding 3.4 and 3.6).

·         Intermezzo : The Index of Economic Freedom.

·         Individual and market demand. Changes in price and income. Engel curves. Income and substitution effects. Consumer surplus (PR, Ch. 4, excluding 4.6).  

3. Microeconomics of Production (lessons 6-8)

·         Production technology. Isoquant. Single production factor: average and marginal product; law of diminishing returns. Two factors: the marginal rate of technical substitution; perfectly substitutable factors of production. Returns to scale: increasing, decreasing and constant. (PR, Ch. 6).

·         Economic cost versus accounting costs. Fixed cost and variable cost. Average and marginal cost both in the short-run and long-run. Choice of inputs that minimize costs. The expansion path. Economies and diseconomies of scale. The production of two goods, and the economies of diversification. (PR, Ch. 7, excluding 7.6 and 7.7).  

4. Perfectly Competitive Markets (lessons 9-10)

·         Profit maximization and competitive offer. Marginal Revenue, Marginal Cost, and Profit Maximization (in general terms and in the case of perfect competition). Profitability and profit maximization for a perfectly competitive firm. Supply curve and the market in the short term. Producer surplus. The choices of production in the long run. The supply curve and the market in the long run. (PR, Ch. 8).

·         Effects of public intervention. Price controls. Impact of taxes and subsidies. Efficiency of the competitive market. Minimum prices. Price support (PR, Ch. 9, excluding 9.5 and 9.6).

5. Imperfect competition: monopoly and monopolistic competition (lessons 11-13)

·         Monopoly. (PR, Cap. 10, excluding 10.5 and 10.6).

·         First-degree price discrimination; second-degree and third-degree price discrimination. The two-part tariff. (PR, Ch. 11, excluding 11.5 and 11.6).

·         Monopolistic competition. (PR, Ch. 12, only 12.1).

·         Competition policy (lecture notes).

6. Game theory and Oligopoly (lessons  14-17)

·         Game theory and competitive strategies. Dominant strategies and Nash Equilibrium. Games with backward induction. Subgame perfect Nash Equilibrium. The Prisoner's dilemma and its applications. Repeated Games and Folk Theorem: the onset of endogenous cooperation. (PR, Ch. 12, only 12.4; PR, Ch. 13, excluding 13.3 and 13.8; lecture notes).

·         Oligopoly: the Cournot model, the Stackelberg model, the Bertrand model. Cartels and their stability (application of the Folk Theorem). Price leadership. (PR, Ch. 12).  

7. General Equilibrium, Information, Market Failures and the Role of the State (lessons 18-19)

·         General equilibrium. Exchange efficiency: the Edgeworth box; efficient allocations, the contract curve, the first and second theorem of welfare economics. Fairness and efficiency. (PR, Ch. 16, excluding 16.5).

·         Asymmetric information. (PR, Ch. 17, excluding17.4 and 17.5; lecture notes).

·         Externalities and public goods. Positive and negative externalities and market failures. Methods for correcting market failures: the emission standard and the tax on polluting emissions. Externalities and Property Rights: the Coase theorem. Public goods. (PR, Ch. 18, excluding 18.3, 18.5 and 18.7).

8. Innovation, Energy and Environment (lesson 20)

·         Innovation, energy policy and the environment.

Readings/Bibliography

·         Pindyck, R. S.  e D. L. Rubinfeld, "Microeconomics", Pearson, 8th edition. 2012   (PR)

·         Online exercises will be provided by instructor

Teaching methods

Frontal lessons

Assessment methods

The exam will be only in written format and will be structured as follows:

            -  10 multiple choice questions (each question worth 1 point)
            -  2 theoretical questions (each question worth 5 points)
            -  2 mathematical exercises (each exercise worth 5 points)

Please note, participants will not be granted the possibility to integrate/substitute marks with oral examinations. Further detailed information on the written exam will be given throughout the course. It is highly recommended that participants attend all lessons in order to successfully prepare for the exam which will be based on materials, exercises and discussions carried out in class.

Teaching tools

Lecture material, powerpoint slides and compulsory articles will be made available online, along with additional complementary readings. Students are strongly required to actively engage in class discussion.

Office hours

See the website of Andrea Mantovani