SYLLABUS FOR MICROECONOMICS

The course spans the whole year. The final grade for first-year Microeconomics will be
computed as the average of the grades obtained in each of the two semesters. Please note that the
final exam in June will not be cumulative (it will cover topics from the second semester only).

FIRST SEMESTER

Lecturers: Anna Yurko

Class Teachers: Anna Yurko

Course Description
Microeconomics I is the first part of the two-semester graduate-level course which provides a
rigorous treatment of microeconomic theory and its applications. We first study the decisions of
individual economic agents, beginning with the theory of consumer choice and the producer
theory. We introduce the concept of duality and analyze it in the context of consumption and
production decisions. Afterwards, we study decision-making under uncertainty and introduce the
expected utility theory. We also discuss its critiques. The course proceeds with the study of
competitive equilibrium and its welfare properties in a general equilibrium setting.

Teaching Objectives
The objective of the course is to provide the students with a thorough knowledge and
understanding of the foundations of modern economic analysis. The students will be introduced
to the classical results and recent developments in microeconomic theory but the main focus will
be on developing their modeling skills and encouraging them to think analytically about real-
world phenomena.

Prerequisites:
Intermediate Microeconomics, Calculus, Linear Algebra, Probability

Teaching Methods
Lectures, discussions, and problem-solving sessions.

Grade determination

The students should regularly hand in assignments selected problems of which will be discussed
in class. The grade will be based on the final exam (55%), a midterm exam (35%), homeworks
(5%), and class attendance (5%).

Main reading

1

Varian, Hall (1992): Microeconomic Analysis, Third Edition, W. W. Norton & Company,
Inc, New York.

Mas-Colell, Andreu, Whinston, Michael and Jerry Green (1995): Microeconomic Theory,
Oxford University Press, Oxford, New York.

Gibbons, Robert (1992): Game theory for Applied Economists, Princeton University
Press, Princeton, New Jersey.

Varian (1992) [hereafter, V] is the main book of the course. Mas-Colell et al. (1995) [hereafter,
MWG] is more formal but less intuitive than V and may be consulted by the more technically
inclined.

Additional reading

Simon, Carl and Lawrence Blume (1994): Mathematics for Economists, W. W. Norton &
Company.

Kreps, David (1990): A Course in Microeconomic Theory, Princeton University Press,

Princeton, New Jersey.

Rubinstein, Ariel (2006): Lecture Notes in Microeconomic Theory, Princeton University

Press, Princeton and Oxford, http://arielrubinstein.tau.ac.il/Rubinstein2007.pdf

Simon and Blume (1994) is an excellent reference book for the mathematical tools used in this
course. Kreps (1990) is a more intuitive textbook on microeconomic theory than MWG and can
also be used to study the material. Rubinstein (2006) is available on-line; it is based on
Rubenstein’s lecture notes for the graduate–level microeconomics course. The book provides
good intuition and thorough treatment of the following topics: consumer choice, producer theory
and choice under uncertainty.

Course outline
[Required readings are marked by an asterisk (*)]

1. Consumer Choice Theory (5 lectures, 3 seminars)

This chapter studies in detail the individual decisions of consumers. First, we consider
individual decision making in an abstract setting: the preference-based vs. the choice-
based approach. Then, we focus on the optimal decisions of individual consumers. We
derive individual demands and work out their properties. We further discuss the duality
of utility maximization and expenditure minimization, study the problem of integrability,
and analyze the relation between the earlier results and the choice-based approach. We
conclude with the issues of demand aggregation.

• V, Chapters 7-10.*
• MWG, Chapters 1-4.*
• Rubinstein (2006), Lectures 1-6.
• Simon and Blume (1994), Chapters 16-21.

2
 2. Producer Theory (3 lectures, 1 seminar)
This part of the course studies the behavior of the firm and develops a theory parallel to
the theory consumption analyzed earlier. We study profit maximization and cost
minimization, work out the properties of firm’s supply, discuss efficiency in production.
The chapter finishes with supply aggregation.

• V, Chapters 1-6, 13.3.*

• MWG, Chapter 5.*
• Rubinstein (2006), Lecture 7.

3. Choice Under Uncertainty (4 lectures, 2 seminars)

We start by learning how to represent risky alternatives by means of lotteries. Then, by

imposing rationality, continuity, and independence on individual preferences we obtain a
central result known as the expected utility theorem. We analyze the attitude of different
individuals towards risk and discuss some classical measures of risk aversion. We then
move to comparing alternative distributions of monetary returns in terms of stochastic
dominance. We consider the limitations of the expected utility theory and we provide
Savage’s foundation for subjective expected utlity theorem. Violations of Savage axioms
lead to a brief discussion of Ellsberg’s paradox and ambiguity aversion.

• MWG, Chapter 6 (A-D). *

• Handout on savage axioms. *
• Rubinstein (2006), Lectures 8-9.

4. General Equilibrium (4 lectures, 2 seminars)

In this part of the course we consider a competitive market economy in a general

equilibrium setting. We formally introduce the notions of Pareto optimality and
competitive (or Walrasian) equilibrium and analyze their interrelation summarized in the
two fundamental theorems of welfare economics. We study in detail the 2 by 2 exchange
economy model and the 2 by 2 (two products, two factors) production economy model.

• MWG, Chapters 15 (A-D), 16 (C), 17 (A-B), 19 (A-D). *

Distribution of hours
№ Topic Total (hours) Contact hours Self-study
Lec- Semi-
tures nars
1. Consumer Choice Theory 36 10 6 20
2. Producer Theory 20 6 2 12
3. Choice under Uncertainty 27 8 4 15
4. General Equilibrium 27 8 4 15
Total: 110 32 16 62

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 Syllabus for Microeconomics - 2nd semester
Class and seminar teacher: Emiliano Catonini

1 Course Description
This course consists of two parts: the …rst one is devoted to introduction to game
theory, the second focuses on topics in contract theory. Game-theoretical part
covers static and dynamic games, both of complete and incomplete information.
We go over game-theoretical applications in industrial organization, auctions
and labour markets. The second part of the course focuses on contract theory
and builds up on the concepts studied in the …rst part. A general principal-
agent framework is set up and all the applications are derived using the same
approach. We cover various modi…cations of adverse selection and moral hazard
problems.

2 Teaching Objectives
The objective of the course is to provide students with thorough and rigorous
understanding of the concepts of game theory and contract theory. At the end
of the course students are expected to be ‡uent in application of this concepts
to the analysis of economic problems.

3 Literature
1. Osborne, Rubinstein, ”A course in Game Theory”, The MIT Press (1994)
2. Salanie, B. ”The Economics of Contracts”2nd ed., The MIT Press (2005).
3. La¤ont J.-J. and D. Martimort ”The Theory of Incentives” Princeton
University Press (2002).
4. Bolton, P. and M. Dewatripont ”Contract Theory”, The MIT Press (2005).
5. Krishna, V. ”Auction Theory” 2nd ed. Elsevier (2010).
6. Mas-Colell, Whinston and Green ”Microeconomic Theory”, Oxford Uni-
versity Press (1995).

1
4 Grading

Let F be …nal grade, E –exam grade, M –midterm grade and H –homeworks.

Then: F = 0.5E + 0.45M + 0.05H

5 Program and hours (total 120)

1. Static games of complete info (lectures 4, seminars 2, self-study 8):
Dominance and rationalizability
Nash equilibrium in pure and mixed strategies
2. Static games of incomplete info (lectures 4, seminar 2, self-study 8):
Bayesian equilibrium.
Auctions.
3. Dynamic games of complete info (lectures 4, seminar 2, self-study 8):
Subgame perfect equilibrium
Repeated games
4. Dynamic games of incomplete info (lectures 4, seminar 2, self-study 8):
Perfect Bayesian Equilibrium.
Spence model, Cheap-talk model.
5. Adverse Selection (lectures 4, seminar 2, self-study 10):
Baseline model of adverse selection: …rst-best and second-best.
Shutdown and pooling contracts, Applications to …nancial contracts.
6. Advanced topics in adverse selection (lectures 4, seminar 2, self-study 10):
Ex ante contracting with limited liability. Contracts with audit.
Contracts with di¤erent outside options. Continuum of types.
7. Moral Hazard (lectures 4, seminar 2, self-study 10):
Baseline model of moral hazard: observable and unobservable e¤ort,
risk-neutral and risk-averse agents.
Multiple outcomes. Continuum of outcomes.
8. Advanced topics in moral hazard (lectures 4, seminar 2, self-study 10):
Linear contracts.
Multitasking. Relational contracts.