28874 - Microeconomics 2

Learning outcomes

At the end of the class, the student has a working knowledge of the basic tools and results of the classical microeconomic theory for perfectly competitive environments. In particular, the class focuses on: - Classical consumer theory: utility maximization and expenditure minimization. - Choice under uncertainty and insurance decisions. - Production theory, profit maximization and cost functions. - Welfare analysis of perfectly competitive markets.

Course contents

 

1. Consumer behaviour, consumer choice and demand
   • Preference relations, rationality and utility functions
   • The budget set
   • Demand functions
   • Indirect utility
   • Utility maximization, expenditure minimization and duality
   • Individual and aggregated demand functions
   • Welfare evaluation of economic changes

     Readings:

     As a preliminary reading, students might look at McALD ch.12 before the lecture.

     MWG ch. 1.B, ch. 3 (3.J excluded), ch. 4.B

2. Choice under uncertainty
   • Expected utility theory
   • Risk aversion and risk premium
   • The insurance decision
   • Risk spreading, risk pooling and diversification

     Readings:

     GR ch. 17 and 19 (F, G, H excluded)

     MWG ch. 6

3. Production
   • Production sets
   • Profit maximization, cost minimization and duality
   • Aggregation
   • Efficient production

     Readings:

     As a preliminary reading, students might look at McALD ch.9 and 10 before the lecture.

     MWG ch 5.

4. Partial equilibrium analysis
   • Pareto optimality and competitive equilibria
   • The fundamental welfare theorems in partial equilibrium
   • Welfare analysis in partial equilibrium

     Readings:

     MWG ch. 10 (F excluded)

5. General Economic Equilibrium
   • Pure exchange
   • Pareto optimality in general equilibrium
   • General economic equilibrium with production
   • The fundamental welfare theorems in general equilibrium

     Readings:

     As a preliminary reading, students might look at McALD ch.14 before the lecture.

     MWG ch. 15 and 16 (G excluded)

     JR ch 5 (limited to 5.1, 5.2 and 5.3)

6. Applications

Readings/Bibliography

Preliminary reading (non-compulsory, recommended to refresh Intermediate Micro, in case it is needed):

McAfee, Preston, Tracy R. Lewis and Donald J. Dale. Introduction to Economic Analysis (version 2.1, can be downloaded free of charge from http://www.muhlenberg.edu/iea/ ).

Main textbook:

Mas-Colell, Andreu, Michael D. Whinston and Jerry R. Green. Microeconomic Theory. Oxford University Press, 1995.

Other textbook we use:

Gravelle, Hugh and Ray Rees. Microeconomics (3^rd ed.) Pearson, 2004.

Jehle, Geoffrey A. and Philip J. Reny. Advanced Microeconomic Theory (3^rd ed.) Pearson, 2011.

In the syllabus,

McALD stands for McAfee, Lewis and Dale

MWG stands for Mas-Colell, Winston and Green

GR stands for Gravelle and Rees

JR stands for Jehle and Reny

Other readings, especially regarding applications, might be provided during the lessons.

Teaching methods

Class lectures, applications of the theory to policy cases and individual study.

Assessment methods

• Homeworks (challenging - 20% of final grade)
• Final exam (75% of final grade)
• Class participation (5% of final grade)

Students are actively encouraged to participate in lectures and in class activities. The assessment will be based on the frequency and quality of comments and other contributions made during class.

The final exam will consist of exercises and applications of the theory. Adequate training will be provided in class and, possibly, in separate TA sessions. The final exam test the ability of the student to apply the methodology learned in the course to theoretical cases.

Teaching tools

Slides and other materials might be available on the e-learning platform.

Links to further information

https://iol.unibo.it/course/view.php?id=22607

Office hours

See the website of Emanuela Carbonara