*Conducted in term:*2020Z

*Erasmus code:*14.3

*ISCED code:*0311

*ECTS credits:*6

*Language:*English

*Organized by:*Faculty of Economic Sciences

*Related to study programmes:*

# Advanced Microeconomics 2400-M1PPZMIKa

This is an English language equivalent of an obligatory Polish language course offered to our MA students. The aim of the lecture is to introduce students to elements of advanced modern microeconomics. The course covers several topics, including consumer and producer theory, partial as well as general equilibrium, market failures and game theory. It is based on texts by Hal Varian: Intermediate Microeconomics: A Modern Approach, W. W. Norton & Co., 2006 (IM), and Microeconomic Analysis, W. W. Norton & Co Ltd. 1992 (MA). Students are also encouraged to read selected chapters of Mas-Colell A., Whinston M. D., Green J., Microeconomic Theory, Oxford University Press 1995 (MT). This text, however, may be considered too advanced by many course participants.

Lecture topics (chapters in textbooks are given in parentheses)

01 Microeconomic approach to economic analysis: optimization and equilibrium; discussion of constraints (IM 1,9, MA 27)

02 Producer's choice (I): production factors; long- versus short-run; fixed versus variable costs (IM 18, MA 1, MT 5A-D)

03 Producer's choice (II): availability of technology and production function; linear, Cobb-Douglas and Leontiev technologies/functions; elasticity of substitution (IM 18, MA 1, MT 5A)

04 Constant Elasticity of Substitution (CES) production function; profit functions and cost functions; Shephard's Lemma; secondary demand functions; profit maximization and cost minimization (IM 18-21, MA 1,2,3,4,5,6, MT 5C,F,G)

05 Aggregate supply under perfect competition; homogenous or heterogeneous firms deadweight welfare loss; tax incidence (IM 23, MA 18, MT 5E)

06 Oligopolistic supply; Cournot, Bertrand, Stackelberg, price leadership models; heterogeneous products (IM 27, MA 16, MT 12A,C)

07 Monopolistic competition: long- versus short run; Hotelling and Salop models (IM 24-25, MA 14, MT 12C)

08 Monopolistic supply; market equilibrium in a linear demand case; price discrimination strategies; stability of monopolistic collusion (IM 25, MA 14, MT 12B)

09 Consumer's choice (I): preferences versus utilities; bundles; axioms of consumer behaviour (IM 2-5, MA 7, MT 1A,B, 2A-D)

10 Consumer's choice (II): indirect utility functions (IM 6, MA 7,8, MT 3D,G)

11 Consumer's choice (III): Roy identity (IM 6, MA 7,8, MT 3D,G)

12 Consumer's choice (IV): welfare change measures; equivalent variation (EV) and compensating variation (CV); quasilinear preferences (IM 14, MA 10, MT 3I)

13 Duality in consumer theory: utility maximization and expenditure minimization; Marshallian and Hicksian demand functions (IM 8, MA 9, MT 3D-E)

14 Labour supply model: backward-bending supply curve (IM 9, MA 9)

15 Choice under uncertainty: lotteries; expected utility; risk aversion (IM 12-13, MA 11, MT 6A-C)

16 Partial versus general equilibrium approach: Walrasian equilibrium; Edgeworth box technique for a pure-exchange economy (IM 31,32, MA 17,21, MT 15A-E)

17 Partial versus general equilibrium approach: 2x2 models; Robinson Crusoe economy (IM 31,32, MA 17,21, MT 15A-E)

18 First and Second Fundamental Welfare Economics Theorems; mathematics and Edgeworth boxes (IM 33, MA 21-22, MT 16A-D)

19 Public goods (I): definition and examples; first order conditions for discrete and continuous cases; Lindahl equilibrium (IM 36, MA 23, MT 11C)

20 Public goods (II): demand revelation for public goods; Groves-Clarke tax (IM 36, MA 23, MT 11E)

21 Externalities (I): definition and examples; missing markets and public goods; inefficiency of market equilibria (IM 34, MA 24, MT 11A-B,D)

22 Externalities (II): corrective measures; Pigouvian taxes and direct regulations; Coase theorem (IM 34, MA 24, MT 11B)

23 Asymmetric information (I): principal-agent models (IM 37, MA 25, MT 14A-D)

24 Asymmetric information (II): adverse selection; signalling; screening (IM 37, MA 25, MT 13A-D)

25 Game theory (I): cooperation and rivalry; Nash equilibrium; pure and mixed strategies (IM 28,29, MA 15, MT 7A-E)

26 Game theory (II): simultaneous-move versus sequential games; "trembling hand" perfection (IM 28, MA 15, MT 8F)

27 Game theory (III): Subgame Perfect Nash Equilibrium; examples (IM 28, MA 15, MT 9B)

28 Game theory (IV): sequential rationality; backward induction; Folk Theorem for infinite games (IM 10,28, MA 15, MT 9C, 12D)

29 Network markets; definition and examples; price-undercut-proof equilibrium (IM 35, MA 25)

30 Kuhn-Tucker and Envelope Theorems (IM Mathematical Appendix A10, MT Mathematical Appendix K-L)

## Type of course

## Course coordinators

## Mode

## Learning outcomes

Students have a deepened knowledge of selected methods and analytical instruments, including socio-economic modeling.

Students have a deepened knowledge of selected institutions and – thanks to emphasizing their continuity – their historical evolution

Students are able to understand and analyze economic phenomena, as well as to evaluate tchem theoretically

Students acquire language skills thanks to taking the course offered in English

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

## Assessment criteria

For each lecture there will be a set of exercises to check the correct understanding of concepts just introduced. Exercises are voluntary, but students should solve them in order to be better prepared for the final exam.

## Bibliography

Hal Varian: Intermediate Microeconomics: A Modern Approach, W. W. Norton & Co., 2006 (IM), and Microeconomic Analysis, W. W. Norton & Co Ltd. 1992 (MA). Students are also encouraged to read selected chapters of Mas-Colell A., Whinston M. D., Green J., Microeconomic Theory, Oxford University Press 1995 (MT)

## 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, 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: