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

• Homework (challenging - 30% of final grade)

The homework will contain both theoretical questions (in the form of true/false questions, that students are asked to prove, also using math and calculus) and exercises. Each homework is worth 105 points total. 

The scores in the homework are "translated" into 30th as follows: 105 points correspond to 32. Lower scores are transformed into 30th proportionally.

• Final exam (70% of final grade)

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

The number of total points available for the exam is 32 + 5 bonus points. Students with a score higher than 30 will get a "30 cum laude" grade. The final exam lasts 2 hours and consists of three distinct sections:

Section A) A theoretical section, in which students are confronted with short statements and have to prove whether these are true or false. In this part, students may also be asked to prove fundamental theorems or results. This part consists of 3 questions and students have to choose and answer 2 of them. Each question is worth 5 points maximum and the theoretical section is worth 10 points maximum.

Section B) Bonus section (not in the September exam session). This section consists of a single, optional question. Students are free to answer this question or they can disregard it. If they decide to disregard the bonus question, they are still able to get 32 points total in the rest of the exam. The question can be a short question on theory (similar to those in part A) or a short exercise. Section B is worth a maximum of 5 points.

Section C) Exercises. This section consists of 3 exercises, each worth a maximum of 11 points. Students have to choose and solve 2 exercises. The total points available for this section are 22 maximum. One of the exercises in section C) will reproduce exactly an exercise from the homework (possibly shortened to reflect the time limits in the exam).

The final score in the exam is then averaged with the final score in the homework to obtain the final grade in Microeconomics 2 (the weighs are 70% for the exam and 30% for the homework).

The final grade in the Microeconomics exam is obtain averaging the grade in Microeconomics 1 with the grade in Microeconomics 2. Each course is worth 50% in the average.

 

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=40379

Office hours

See the website of Emanuela Carbonara

See the website of Nadia Burani