Microeconomics 1

Number of Credits: 7 credits

Hours: 30 hours of Lectures, 30 hours of Tutorials including exam, and 20 hours of flipped Classrooms with tutor support.

General Presentation. The course deals with individual decision-making by consumers and producers, and competitive equilibria, and Pareto optimal allocations in pure exchange economies and in production economies.

Course Content.

Part A - Individual Decision Making:

  • Rational Behavior, Choice, and Market Demand. Consumption set, preferences, properties of preferences, utility representation, properties of utility functions, examples. Choice rules and the weak axiom of revealed preference. Budget constraint, utility maximization problem, competitive demand, properties, and computation on some examples. Differential characterization of the demand for a differentiable utility function. Expected utility theory and risk aversion.
  • Production and Firm Behavior. Production set, transformation function, production function, examples. Competitive behavior, profit maximization, profit function, supply function, properties. Differential characterization of the supply for a differentiable transformation function. Cost minimization, cost function, demand function, properties. Relationship between profit maximization and cost minimization.

Part B - Equilibria & Optimality:

  • Pure exchange: the Edgeworth box. Definitions of competitive equilibrium and Pareto optimality in the Edgeworth box. Computation and geometric characterization of equilibria and Pareto optima in the Edgeworth box.
  • Production economies: Private ownership economies, the definition of competitive equilibrium. Basic properties: Walras’s Law and price normalization. Computation of competitive equilibria. Notions of feasible allocations and Pareto optimal allocations in a production economy. Pareto optimality conditions in terms of marginal rates of substitution and marginal rates of transformation. First and Second theorems of welfare economics.

Books: Mas-Colell, A., Whinston, M.D., Green, J., (MWG) Microeconomic Theory, Oxford University Press, 1995. Chapters 1-6, 10, and 15-16.

Prerequisites: Logic and Sets, Multivariable Calculus, and Optimization.