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Microeconomics 1 (ECO-CO-MICRO1)

ECO-CO-MICRO1

Purpose

The course will examine individual choice and competitive markets. In the first part of the course, we will analyze the choice problem of consumers and firms, and establish properties of individual and aggregate demand functions. We will conclude the first part with an analysis of individual choice under uncertainty. In the second part of the course, we will first investigate what economic outcomes or allocations are feasible in these economies, and what outcomes are efficient. We will then analyze the properties of equilibrium allocations when consumers and firms trade in competitive markets.

Description

• Texts: The main textbook for the class is A. Mas-Colell, M.D. Whinston and J.R. Green (1995), Microeconomic Theory, Oxford University Press. [Chapters 1-6, 15-16, 18]. Other references are H. Varian (1984), Microeconomic Analysis, Norton, 2nd edition; G.A. Jehle and P.J. Reny (2011), Advanced Microeconomic Theory, 3rd edition, Prentice Hall 2011; A. Rubinstein (2012), Lecture Notes in Microeconomic Theory, Princeton University Press, 2nd edition. Lecture Notes will be distributed.

• Prerequisites. You are expected to be familiar with standard intermediate microeconomics material (as in Varian, Intermediate Microeconomics (1999)). Regarding the mathematical background, you should be familiar with the material covered in the EUI Math course and with the Mathematical Appendix of Mas-Colell, Whinston and Green (1995) (see also Simon, C.P. and L. Blume (1994), Mathematics for Economists, Norton).

• Requirements: Problem sets will be sent a week in advance and need to be turned in. Grading: Final exam (80%) Problem sets (20%).

• Final Exam: 08/11/2024

• Outline (tentative)

1. Individual Choice:
(a) Consumer Theory

• Consumption set and budget set
• Consumer preferences and utility
• Consumer choice
• Properties of individual demand function
• Duality
• Welfare analysis of price changes

(b) Producer Theory

• Production sets
• Producer choice

2. Aggregation

• Properties of aggregate vs. individual demand (when does a representative consumer exist?)

3. Choice under Uncertainty

• Preferences over lotteries
• Expected utility theorem
• Risk attitude
• Comparing different risks

4. Competitive Equilibrium

• Feasibility and pareto efficiency
• Definition
• Welfare properties: First and Second Welfare Theorems
• Gains from trade
• Existence
• Uniqueness

5. General Equilibrium Under Uncertainty: Arrow-Debreu Economies
 

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