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EP 711 Microeconomic Theory

Course Specification

Lecturer: Dr. Vasileios Zikos

Course description

The module examines how agents and firms behave in a formal framework. This will

demonstrate the art of formal modelling which requires simplifying a problem by identifying

the key elements of an agent’s behaviour without trivialising the issue. Thinking in a

structured framework and the importance of rigorous arguments will be highlighted.

Methods of Teaching/Learning

Lectures

Readings using the lecturer’s guidance

Solving exercises both during lectures and self-study

Responding to questions in class

Preparing and taking part in the mid-semester test and final exam

Course materials/textbooks

1. Varian, H. (1992): Microeconomic Analysis, 3rd edition, Norton: New York.

2. Mas-Colell, A., Whinston, M., and Green, G. (1995): Microeconomic Theory, Oxford

University Press.

Supplementary reading:

1. Gibbons, R., A Primer in Game Theory, Prentice Hall, 1992.

2. Laffont, J-J. and Martimort, D. (2002): The Theory of Incentives: The Principal-Agent

Model, Princeton University Press.

Assessment

Your final mark will be based on the following:

Mid-Semester Test 40%

In-Class Participation 10%

Final Exam 50%

Total 100%

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Course outline

Week 1: Games in strategic form, Nash equilibrium, strictly and weekly dominated actions

Readings: Mas-Colell et al. Chapter 8 (section A, B and D); Gibbons Chapter 1 (p. 1-14);

Varian Chapter 15

Week 2: Best response functions and Nash equilibrium

Readings: Lecture notes; Mas-Colell et al. Chapter 12 (section C); Varian Chapter 15

Week 3: Economic applications of the Nash equilibrium

Readings: Mas-Colell et al. Chapter 12 (section C); Gibbons Chapter 1 (Sections 1.2.A,

1.2.B)

Week 4: Introduction to dynamic games Readings: Gibbons Chapter 2; Varian Chapter 15

Week 5: Adverse Selection (The Principal-Agent model)

Readings: Laffont and Martimort Chapter 2 (a pdf copy of the chapter will be emailed to

students by the lecturer)

Week 6: Problem solving (also aimed at preparing the students for the mid-semester exam)

Week 7: MID-SEMESTER TEST- covers weeks 1-6

Week 8: Budget Constraint, Preferences, Utility and Choice – part I

Readings: Varian Chapter 7

Week 9: Budget Constraint, Preferences, Utility and Choice – part II

Readings: Varian Chapter 7

Week 10: Expenditure minimisation and Slutsky equation

Readings: Varian Chapter 7 and 8 (up to p. 123)

Week 11: Applications on consumer theory

Readings: lecture notes

Week 12: Profit maximization and cost minimization

Readings: Varian Chapters 1, 2 and 4; Mas-Colell et al. Chapter 5

Week 13: General equilibrium – Exchange

Readings: Varian chapter 17; Mas-Colell et al. chapter 15 (up to p. 525) and chapter 16 (up to

p. 552)

Week 14: Externalities and Public goods

Readings: Mas-Colell et al. Chapter 11

Week 15: Problem solving (also aimed at preparing the students for the final exam)

Week 16: Final Exam