*Conducted in term:*2020Z

*Erasmus code:*14.3

*ISCED code:*0311

*ECTS credits:*6

*Language:*Polish

*Organized by:*Faculty of Economic Sciences

# Advanced Microeconomics 2400-M1PPZMIK

The purpose of the course is the introduction to the basic concepts and models from the field of microeconomics. The course covers the topics of consumers and producers choices, equilibrium concepts, game theory and asymmetric information. In addition to traditional concepts, we will discuss several examples of scientific papers. We will also discuss the applications of microeconomic theory to the analysis of contemporary problems: the increase in income inequality in developed countries, the optimal design and costs of climate policies, the separation of power between the EU and member states, patents wars and the diffusion of new technologies.

## Type of course

## Prerequisites (description)

## Course coordinators

## Mode

## Learning outcomes

Students should be familiar with the following topics:

Part I. Basic microeconomic concepts

1. Rules of the course; introduction to microeconomic theory; mathematical toolbox

2. Consumer choices: the linear city – Hoteling (1929)*; Median voter theorem +;

3. Consumer choices: the circle city – Salop (1979)*;

4. Stochastic utility function – Perlof i Salop (1985)*; Logit and the diffusion of electric cars – Liu i Lin (2017)+;

5. Preferences; utility function; budget constraints; graphical representation of consumer choices (VIM 2-5, VMA 7, MWG 2A-D);

6. Walras Demand; Walras Law, Homogeneity of the demand function, Law of demand (VMA 8,9; MWG 2E-F)

7. Elasticity of demand; types of goods; Hicks demand, Slutsky equation (VIM 6,8, VMA 8,9, MWG 3D-G)

8. Discounting and intertemporal choices; Euler equation; the market solution (VIM 10,11; VMA 19, MWG 20A,B,D); discounting and an optimal time for investment – Dasgupta (2008)*+

9. Choices under uncertainty; von Neumann-Morgenstern utility function; Risk premium (VIM 12; VMA 11; MWG 6A-C); economic growth and the uncertainty – Arrow (2009)*+

10. Technology; KLEMS; production function, isoquants; substitutability of factors of production, CES (VIM 18; VMA 1; MWG 5A,B); Simulating firms choices using numerical model +

11. Production costs; cost minimization - examples and graphical analysis (VIM 20-21, VMA 4,5; MWG: 5C)

12. Costs minimization – mathematical analysis; cost function properties, Shephard’s Lemma; The fundamental inequality of cost-minimization; LeChatelier principle; Cost function and the production function; the aggregation of demand (VIM 20-21, VMA 4,5, MWG 5C)

13. Profit maximization; demand and supply of firms; Hoteling Lemma; conditional and unconditional demand; duality (VIM 19,22, VMA 2,3,6 MWG 5C)

14. Impact of technology on income inequality - Katz and Murphy (1992) oraz Goldin and Katz (2007)*+

15. Impact of technology on income inequality - Krusell et al. (2000)*+; Partial vs general equilibrium; Walras equilibrium, First and second welfare theorems (VIM 31, VMA 13,17; MWG 15E, 16A-D)

Part II. Application of microeconomics to the modelling of low-carbon transition in Poland

16. short test; Externalities (VMA 24); tragedy of commons+; optimal investment in climate mitigation+

17. Analysis of demand for renewable Energy sources in Poland+; The model of optimal Energy mix for Poland (by the Department of Strategic Analysis in the Chancellery of the Prime Minister)+

18. Simulating the impact of climate policies on Polish economy – the application of the general equilibrium model +; What does the model ignore?+

Part III: Incomplete, noncompetitive markets

19. Monopoly; setting price and quantities (VIM 24-25, VMA 14, MWG 12B)

20. Price discrimination; monopolistic competition (VIM 24-25); (VIM 28,29, VMA 14)

21. Introduction to game theory; strategies; normal form(VIM 28,29, VMA 15, MWG 7A-E; 8A-B)

22. Nash equilibrium in mixed and pure strategies (VIM 28,29, VMA 15, MWG 7A-E; 8A-D)

23. Sequential games; extensive form; Subgame Perfect Nash Equilibrium; Repeated games (VIM 28,29, VMA 15, MWG 7C; 9A,B);

24. Discussion of the homework; Oligopoly: Cournot; Bertrand; Stackelberg (VIM 27, VMA 16, MWG 12A,C)

25. Asymmetric information: signalling (VIM 37, VMA 25; MWG 13C); How PhDs could help in business?+

26. Optimal investment under asymmetric information * – Bandiera (2007); Principal-Agent model (VIM 37, VMA 25);

27. Market for lemons * – Akerlof (1970), VIM 37, VMA 25, MWG: 13A,B

28. Exercises

29. Exercises and exam

* Topics that are based on the scientific articles (see the list below). During lectures we will discuss the simplified versions of the model. You need to know only the models discussed during the lectures.

+ Topics that students could choose for the research project (see below). These are not required for the exam.

KW01, KW02, KW03, KW04, KU01, KU02, KU03, KU04, KU05, KU06, KU07, KK01, KK02, KK03

## Assessment criteria

You can get up to 100 points.

Up to 70 points you get from the final exam

Up to 15 points you get from the research project (see below)

Up to 8 points you get from the homework (see below)

7 points you get by passing the short test after the first part of the course.

If you cannot attend the short test or you cannot submit the homework for objective reasons, you should talk to the lecturer.

## Bibliography

Reading list:

Akerlof, George A. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism". The Quarterly Journal of Economics, Vol. 84, No. 3 (Aug., 1970), pp. 488-500.

sections 1 – 3 w Arrow, Kenneth (2009). "A note on uncertainty and discounting in models of economic growth", Journal of Risk and Uncertainty, April 2009, Volume 38, Issue 2, pp 87–94

Bandiera, O (2005) "Contract Duration and Investment Incentives: Evidence from Land Tenancy Agreements in 19th century Italy" Journal of the European Economic Association, forthcoming

sections 1-3. Dasgupta, Partha, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.

Goldin, Claudia i Lawrence F. Katz (2007). "The Race between Education and Technology: The Evolution of U.S. Educational Wage Differentials, 1890 to 2005," NBER Working Papers 12984, National Bureau of Economic Research, Inc.

Hoteling, Harold (1929). „Stability in Competition”, The economic journal; vol 39 no. 153 (Mar 1929), pp. 41-57

sections I – IV w Katz, Lawrence F. i Kevin M. Murphy (1992) "Changes in Relative Wages, 1963-1987: Supply and Demand Factors" The Quarterly Journal of Economics, Vol. 107, No. 1 (Feb., 1992), pp. 35-78

sections 1-3 w Krusell, Per, Lee E. Ohanian, José-Víctor Ríos-Rull, Giovanni L. Violante (2000). "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis" Econometrica, Vol. 68, No. 5 (Sep., 2000), pp. 1029-1053

Liu, Changzheng i Zhenhong Lin (2017). How uncertain is the future of electric vehicle market: Results from Monte Carlo simulations using a nested logit model, International Journal of Sustainable Transportation, 11:4

sections 1 i 2 w Perloff, Jeffrey M. i Steven C. Salop (1985). "Equilibrium with Product Differentiation". The Review of Economic Studies, Vol. 52, No. 1 (Jan., 1985),

Salop, Steven C. (1979). "Monopolistic Competition with Outside Goods", The Bell Journal of Economics, Vol. 10, No. 1 (Spring, 1979), pp. 141-156

Textbooks:

Varian, H. R., Intermediate Microeconomics, ed. 7 (VIM)

Varian, H. R., Microeconomic Analysis, W. W. Norton & Co., ed. 3′ (VMA)

Required to score above 80%: Mas-Colell, A., M. D. Whinston, J. R. Green, Microeconomic Theory, Oxford University Press, 1995 (MWG)

The textbook are there to help you. The exam will include only the topics that were discussed during the lecutres.

## Additional information

Information on *level* of this course, *year of study* and semester when the course
unit is delivered, types and amount of *class hours* - can be found in course structure
diagrams of apropriate study programmes. This course is related to
the following study programmes:

- Finance, Investments and Accounting, part-time, second cycle
- Computer Science and Econometrics, part-time, second cycle
- Finance, Investments and Accounting, full time, second cycle
- Computer Science and Econometrics, full time, second cycle

Additional information (*registration* calendar, class conductors,
*localization and schedules* of classes), might be available in the USOSweb system: