Microeconomic Theory I

CEU – Economics Department – Fall 2009

5 CEU Credits (10 ECTS) Instructor: Juan Manuel Puerta Email: puertajm@ceu.hu Office: Nador 11, #406 Office hours: by appointment Teaching assistant: Péter Vargha Course webpage: http://www.personal.ceu.hu/staff/Juan_Manuel_Puerta/ Course Description and Objectives Microeconomic Theory 1 is the first half of the two-semester core microeconomics sequence in the MA program. The course aims at introducing you to graduate-level microeconomic theory. Topics discussed include producer and consumer theory, competitive markets, monopoly, and general equilibrium. Microeconomics I will give you the intuition of how competitive markets work and, also, the conditions under which they fail to produce an optimal outcome. Learning Outcomes At the end of the course, you should:

(i) posses a critical understanding of selected topics in modern microeconomic theory at the introductory graduate-level of difficulty

(ii) understand how mathematical methods and rigorous analysis are used to formalize economic concepts and ideas

(iii) be able to set up and solve mathematical models describing specific economic problems at the introductory graduate-level of difficulty.

Course Prerequisites Knowledge of basic calculus is needed. An undergraduate-level course in Microeconomics is also desirable. Course Readings The course will be based on:

• Varian, Hal R. Microeconomic Analysis, Third Edition, W.W. Norton, 1992. (V-MA) Although we will follow (V-MA), the lectures will sometimes deviate from the text. The relevant chapters from (V-MA) have been collected in the class reader, a copy of which you should acquire. If you feel you are rusty on microeconomics or you have never taken a microeconomics course before, I suggest you also make use of one of the more recent editions of

• Varian, Hal R. Intermediate Microeconomics: A Modern Approach, W.W. Norton. (V-IM) The chapters from (V-MA) have their counterparts in (V-IM). The treatment of the topics is both more intuitive and superficial in the intermediate text. So, while (V-IM) is useful to get the ideas, it will not be enough to be successful in the course. Attending the lectures and reading the corresponding chapters from the textbook will help you gain understanding of the concepts. Working on the homework assignments (see Course Requirements below) will help you make the crucial step from understanding the concepts toward being able to solve problems. Learning to solve problems is the key to doing well in this course. Finally, for the last part of the course on General Equilibrium, I will probably follow the following textbook.

• Starr, Ross M. General Equilibrium: An Introduction, Cambridge University Press (Starr) This book covers more material than what is needed for the course but would give a good foundation on general equilibrium for those who want to continue further into more advanced microeconomic theory. Course Requirements and Assessment There will be five homework assignments, a mid-term and a final exam. Homework assignments will be available on the course webpage and will consist of problems that will help you to solve the final exam. You are expected to try to solve homeworks on your own and to submit your own original copy of each homework. The principal criterion for grading the homeworks will be the amount of individual effort put into solving it. However, I encourage you to talk to other students about the problem sets. Solutions will be presented during the seminars. The final exam will cover material of the entire course. The final exam has been scheduled for Friday November 27th. The course grade will be determined as a weighted average of homework scores (20%), midterm score (20%) and final exam score (60%). The final exam will be comprehensive, that is, it will include all the topics of the syllabus. Course Outline The following is a brief outline of topics and relevant chapters from (V-MA) and Starr. For the economic intuition, refer to the corresponding chapter in (V-IM). Weeks 1-3: Producer Theory Technology (Ch. 1), Profit maximization (Ch. 2.1-2.4), Profit function (Ch. 3), Cost minimization (Ch. 4.1-4.4), Cost function (Ch. 5) Weeks 4-6: Consumer Theory Utility maximization (Ch. 7), Consumer demand: comparative statics (Ch. 8.1-8.4), Aggregate demand (Ch. 9.4), Evaluating welfare change (Ch. 10.1-10.6), Choice under uncertainty (Ch. 11.1-11.7) Weeks 7-8: Market Structure Competitive markets (Ch. 13) (Starr, Ch. 4-7), Monopoly without and with price discrimination (Ch. 14) Week 9: General Equilibrium Exchange economy: Walrasian equilibrium, first and second welfare theorem (Ch. 17.1-17.7) (Starr Ch. 12)

Week 10: Final Exam Review (Monday and Wednesday) and Final Exam (Friday) NB. This syllabus may be updated. You are advised to check for the most recent version in the course website.