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INTERMEDIATE MICROECONOMICS Spring 1996 Room: Econ 205 Econ 3070-3 Sec. 1 Professor de Bartolome Office Hours: Office: Econ 202. Textbook: Schotter, A., (1994), Microeconomics: A Modern Approach. Harper Collins. Study Guide: Nyarko, Y., (1994), Study Guide for Microeconomics, a Modern Approach. Harper Collins .. Course description: Microeconomics is about what goods get produced and bought, and at what prices. The course builds on the Principles of Microeconomics (Econ 2010-4), doing the material at a more advanced level and stressing strategic issues. Game theory is introduced and the characteristics which determine industrial structure are explored. The presentation of the course is at the intermediate level. It is required that the student has passed Principles of Microeconomics (Econ 2010-4) and MATH 1050, 1060, 1070, 1080, 1090 and 1100. Difference with other sections: This section covers fewer topics and puts more emphasis on analysis than other sections. Problem sets: Problem sets are given out on a regular basis, and the answers are placed on reserve in the Norlin Library. The problem sets are an integral part of the course. They are designed to help you use the material, and a significant part of the exam will be based on them. Grading: there are two experiments, two midterms and a final exam. The grade of the student will be determined as: 10% experiments, 30% First Midterm, 30% Second Midterm and 30% Final. There may be some data collection exercises; if these are assigned , they will be graded Pass/Fail. Exams: because this is an intermediate class, the exams will not just repeat material covered in class. Some questions will repeat material covered in class , but some will ask you to apply the material in a different environment. The exams will be given in the evening as: FIRST MIDTERM: Monday, 19 Febuary, 7-9pm, in Geo! 114 SECOND MIDTERM : Thursday , 21 March, 7-9pm, in Geo! 114 Attendance at class: it is assumed that you are professional and attend class. If you must miss a class, professional courtesy requires that you notify me beforehand. If you consistenly miss class, you will be warned. If you continue not to attend after the warning , you fail the course. Course outline: attached is a list of topics to be covered and likely dates. Course outline: Date Topic Chapter Jan 17, 19 INTRODUCTION Normative and positive economics . Property rights: the problem of the commons . Jan 22, 24, 26 CONSUMER PREFERENCES Sets. Utility: - diminshing marginal utility . Indifference curves. New Welfare Econmics . Marginal Rate of Substitution. Maximizing utility: - "Marginal rate of substitution = price" rule. 2 omit pp. 23-25 , 30-31 Jan 29, 3 1, Feb 2 EXCHANGE Feasible trades : Edgeworth Box. Gains from trade. Blocking trades . Pareto-efficiency: - "equal marginal rate of substitution" rule. - contract curve. Competitive behavior. Competitive equilibrium. 4 omit pp . 120-126 Feb 5, 7, 9 CONSUMER DEMAND 3 Individual consumer choice. omit Sections 3.12, 3. 15 3. 18 and pp . 93, 103-108 Income expansion path. - inferior and normal (superior) goods. Demand curves . Income and substitution effects: - normal goods and downward sloping demand curves. Market demand. Consumer surplus. Feb 12, 14, 16 PRODUCTION Production process and technology. Production function : - diminshing marginal returns. - marginal product. Isoquants . Marginal rate of technical substitution. Returns to scale. Short-run and long-run production functions . Feb 19. FIRST MIDTYERM EXAM: 7-9pm in Geo! 114 5 -· Feb 21,23 , 26, 28 COST FUNCTIONS Cost functions. Isocost curves. Minimizing the cost of production: - "marginal rate of technical substitution = factor price ratio" rule. Input substitution. Short-run and long-run. Marginal cost functions. Average cost functions. Mar 1, 4, 6, 8. STRATEGIC ANALYSIS Extensive Form. Information sets. Strategy. Normal Form. Nash equilibrium. Dominant strategies. Prisoner's Dilemma. Credible threats. Subgame perfect equilibria. Backward induction. Mar 11, 13 , 15 LABOR CONTRACTS Moral hazard . Efficiency wage. Revenue-sharing. Forcing contracts. 8 omit pp.261-263 Mar 18, 20. MONOPOLY Marginal revenue curve. Maximizing profit: - "Marginal revenue = marginal cost" rule. Social inefficiency: deadweight loss. Socially optimal single price 9 omit Section 9 .4 Mar 21 SECOND MIDTERM EXAM: 7-9 pm in Geo! 114 6 7 omit p. 219-224, and Appendices A and B. 10 omit Section 10.4, and Appendices A,B . Apr 1, 3, 5 , 8 REGULATION. Natural monopoly. Sustainable monopoly. Rate of return regulation. Price-cap. Apr 10, 12, 15 , 17 OLIGOPOLY Cournot Model Welfare properties of duopolistic markets. Bertrand model. Collusive duopoly. Kinked demand curve. Apr 19, 22 MARKET ENTRY Perfect competition as a sequence of successful entries. Apr 24, 26, 29 May l PERFECTLY COMPETITIVE MARKETS Short-run supply of individual firm. Market supply. Equilibrium. Long-run equilibrium. Dynamic changes. Why are long-run competitive equilibria so good? May 3, 6. FREE MARKET AND INTERVENTIONIST IDEOLOGIES First Fundamental Welfare Theorem. Second Fundamental Welfare Theorem. Income redistribution: - Bentham's and Rawl 's argument. - Nozick's rebuttal. 15 If time permits INPUT MARKETS 19 11 omit Sections 11.3, 11.8. 12.5 13 omit Section 13.2