ECN401 Applied Microeconomic Theory
Autumn 2018Spring 2019
This course will cover a range of useful microeconomic tools for investigating firm and consumer decisions, market outcomes, and public policies.
In the first part of the course, students will acquire further insight in models of consumer behavior, general competitive market equilibrium and public good provision. These insights and tools will then be used to find the answer to a range of empirical and theoretical questions.
The second part will introduce students to game theory and equilibrium concepts. We use game theory to analyse different situation where buyers, firms or countries interact. Students will be able to use game theory tools to examine how the performance of markets and firms depend on strategic interaction and information about other players' actions and characteristics.
To enhance students' understanding of the models, special attention will be paid to connecting theory and relevant applications. In addition, classroom experiments will give students first hand experience of the strengths and weaknesses of microeconomic models.
The course will provide a solid background to any course using microeconomic tools. Examples include: industrial economics, behavioral economics, labor economics, public economics, corporate finance and international trade.
Topics (and examples of applications)
A non-exhaustive list of topics covered in the course include:
- consumer preferences and demands (Do people make consistent choices? Do Giffen goods really exist?);
- expenditure functions and welfare measurement (Is Santa Claus an economist? What is the efficiency loss of the US food stamp programme?);
- general equilibrium and the welfare gains of shared information (What are the efficiency gains of mobile phone coverage along the coast of Kerala?);
- the demand for insurance and the welfare losses of asymmetric information (Why is it hard to purchase insurance for some types of hazards?);
- public goods and other market failures (Why does no one want to pay for a new road, but everyone will like to use it?);
- basic concepts in game theory (with applications on oligopoly, trade and tariffs, voting, law enforcement);
- dynamic games and reputation models (with applications on advertising, limit capacity, price guarantees, collusion);
- incomplete information (with applications on contract design, signaling, incentives, and auctions).
By the end of the course, the student will
--understand the main results from microeconomic price theory and the theory of economic games and asymmetric information;
--be acquainted with applications of these theories to a variety of real world problems;
--be able to formulate small scale microeconomic models;
--be able to identify what kind of data is necessary to test the models;
--manage to formulate precise questions about resource (mis)-allocation in strategic and non-strategic settings and understand the microeconomic tools to address these questions.
Regular lectures and four classroom experiments.
Students should be familiar with the material covered in the undergraduate mathematics course MET1 and the undergraduate microeconomics courses SAM1 and SAM2 (for a description, see the Student Handbook 2016/2017). The lecture series will be preceded by two lectures brushing up skills and knowledge of mathematical and statistical tools that will be used in the ECN401 lectures. These two lectures are supplementary and not part of the ECN401 lecture series.
Requirements for course approval
Students should participate in at least three of the four classroom experiments.
There is a three hour written school exam consisting of problems related to both parts of the course. The final evaluation will be based for 70% on the exam and for 15% on each of two compulsory written exercise sets. The compulsory exercise sets can be handed in individually or in groups of max. two students.
Students can retake each component independently.
Grading scale A - F.
The course will be based on a selection of articles. Students are also expected to read up on relevant chapters in Samiran Banerjee (2015) Intermediate microeconomics: a tool-building approach (London: Routledge) and in Joel Watson (2013) Strategy - An introduction to game theory, 3th ed (New York: W.W. Norton) .
- ECTS Credits
- Teaching language
Professor Fred Schroyen, Department of Economics
Lecturers: Professor Fred Schroyen and Assistant professor Thomas de Haan, Department of Economics