*Conducted in term:*2020Z

*Erasmus code:*14.3

*ISCED code:*0311

*ECTS credits:*5

*Language:*English

*Organized by:*Faculty of Economic Sciences

*Related to study programmes:*

# Microeconomics I 2400-PP1MI1a

1. INTRODUCTION and The Market

The subject and scope of Microeconomics, basic research tools, modelling, Constructing a Model, Optimization and Equilibrium, The Demand Curve, The Supply Curve, Market Equilibrium, Comparative Statics, Other Ways to Allocate Apartments , The Discriminating Monopolist • The Ordinary Monopolist • Rent Control • Which Way Is Best? Pareto Efficiency, Comparing Ways to Allocate Apartments, Equilibrium in the Long Run.

2. Budget Constraint

The Budget Constraint, Properties of the Budget Set , How the Budget Line Changes, The

Numeraire, Taxes & Subsidies and Rationing.

3. Preferences

Consumer Preferences, Assumptions about Preferences, Indifference Curves, Examples of Preferences, Perfect Substitutes • Perfect Complements • Bads • Neutrals • Satiation • Discrete Goods • Well-Behaved Preferences, The Marginal Rate of Substitution, Other Interpretations of the MRS, Behavior of the MRS.

4. Utility

Cardinal Utility, Constructing a Utility Function, Some Examples of Utility Functions: Indifference Curves from Utility Perfect Substitutes • Perfect Complements • Quasilinear Preferences• Cobb-Douglas Preferences • Marginal Utility, Marginal Utility and MRS, Utility for Commuting,

5. Choice

Optimal Choice, Consumer Demand, Some Examples Perfect Substitutes • Perfect Complements • Neutrals and Bads •Discrete Goods • Concave Preferences • Cobb-Douglas Preferences •Estimating Utility Functions, Implications of the MRS Condition, Choosing Taxes.

6. Demand

Normal and Inferior Goods, Income Offer Curves and Engel Curves, Some Examples: Perfect Substitutes • Perfect Complements• Cobb-Douglas Preferences • Homothetic Preferences • Quasilinear Preferences • Ordinary Goods and Giffen Goods, The Price Offer Curve and the Demand Curve, Some Examples, Perfect Substitutes • Perfect Complements • A Discrete Good • Substitutes and Complements, The Inverse Demand Function.

7. Revealed Preference

The Idea of Revealed Preference, From Revealed Preference to Preference, Recovering Preferences, The Weak Axiom of Revealed Preference, Checking WARP, The Strong Axiom of Revealed Preference, How to Check SARP, Index Numbers, Price Indices.

8. Slutsky Equation

The Substitution Effect, Example: Calculating the Substitution Effect The Income Effect, Example: Calculating the Income Effect Sign of the Substitution Effect, The Total Change in Demand, Rates of Change, The Law of Demand, Examples of Income and Substitution Effects.

9. Buying and Selling

Net and Gross Demands, The Budget Constraint, Changing the Endowment, Price Changes, Offer Curves and Demand Curves, The Slutsky Equation Revisited, Use of the Slutsky Equation, Example: Calculating the Endowment Income Effect Labor Supply, The Budget Constraint • Comparative Statics of Labor Supply.

10. Intertemporal Choice

The Budget Constraint, Preferences for Consumption, Comparative Statics, The Slutsky Equation and Intertemporal Choice, Inflation, Present Value: A Closer Look, Analyzing Present Value for Several Periods, Use of Present Value.

11. Asset Markets

Rates of Return, Arbitrage and Present Value, Adjustments for Differences among Assets, Assets with Consumption Returns, Taxation of Asset Returns, Market Bubbles, Applications: Depletable Resources • When to Cut a Forest.

12. Uncertainty

Contingent Consumption, Example: Catastrophe Bonds Utility Functions and Probabilities, Example: Some Examples of Utility Functions Expected Utility, Why Expected Utility Is Reasonable, Risk Aversion.

14. Consumer’s Surplus

Demand for a Discrete Good, Constructing Utility from Demand, Other Interpretations of Consumer’s Surplus, From Consumer’s Surplus to Consumers’ Surplus, Approximating a Continuous Demand, Quasilinear Utility, Interpreting the Change in Consumer’s Surplus, Example: The Change in Consumer’s Surplus Compensating and Equivalent Variation, Example: Compensating and Equivalent Variations Example: Compensating and Equivalent Variation for Quasilinear Preferences Producer’s Surplus, Benefit-Cost, Analysis, Rationing • Calculating Gains and Losses.

15. Market Demand

From Individual to Market Demand, The Inverse Demand Function, Example: Adding Up “Linear” Demand Curves Discrete Goods, The Extensive and the Intensive Margin, Elasticity

## Type of course

## Prerequisites (description)

## Mode

## Learning outcomes

Upon the course completion a student gains knowledge of consumer theory, as part of intermediate microeconomic theory.

KW01, KW02, KW03, KU01, KU02, KU03, KU04,

## Assessment criteria

Completing the course requires completing tuition group (30%) and final exam (70%). Final exam is in the form of multiple choice test.

## Bibliography

Required readings:

Varian H. R., Intermediate Microeconomics: A Modern Approach, W. W. Norton & Co Ltd., New York, London, 2006

Bergstrom T. C., Varian, H. R., Workouts in Intermediate Microeconomics, W. W. Norton & Co Ltd., New York, London, 2006

Suggested readings:

Besanko, D., Braeutigam, R. R., Microeconomics, John Wiley&Sons, 2008

Browning, E. K., Zupan, M. A., Microeconomics: Theory and Applications, John Wiley&Sons, 2009

Case, K. E., Fair, R. C., Principles of Microeconomics, Prentice Hall, 2006

Hubbard, G., O'Brien, A. P., Microeconomics, Prentice Hall, 2007

Jehle, G. A., Reny, P. J., Advanced Microeconomic Theory, Addison Wesley, 2000

Mansfield E., Yohe G., Microeconomics: Theory and Applications, W. W. Norton & Co, 2004

McConnell, C. R., Brue, S. L., Microeconomics, Irwin/McGraw-Hill, 2008

Nicholson, W., Microeconomic Theory: Basic Principles and Extensions, South-Western College Pub, 2004

O'Sullivan, A., Sheffrin, S., Perez, S., Microeconomics: Principles, Applications, and Tools, Prentice Hall, 2006

Perloff, J. M., Microeconomics: Theory and Applications with Calculus, Addison-Wesley, 2007

Pindyck, R. S., Rubinfeld, D. L., Microeconomics, Pearson Education, Inc., New Jersey, 2005

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Mas-Colell A., Whinston M. D., Green J., Microeconomic Theory, Oxford University Press, New York, Oxford 1995

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Sydsaeter, K. P., Hammond, A., Essential Mathematics for Economic Analysis, Prentice Hall, 2008

Sydsaeter, K. P., Hammond, A., Seierstad, A., Strom., A., Further Mathematics for Economic Analysis, Prentice Hall, 2008

## Additional information

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