Microeconomic Theory with Applications

ECN401 Microeconomic Theory with Applications

Autumn 2021

  • Topics

    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, and competitive market equilibrium. These insights and tools will then be used to find the answer to a range of empirical and policy questions.

    The second part will introduce students to game theory and its applications. We use game theory to analyse different situations where buyers, firms or countries interact in a strategic way. Students will be able to make sensible predictions about the behaviour of economic agents and outcomes in situations with strategic interaction and limited information.

    To enhance students' understanding of the models, special attention will be paid to connecting theory and relevant applications. Some of these applications will come in the form of classroom experiments.

    The course will provide a solid background for taking any elective course using microeconomic tools. Examples include: economics of the welfare state, public economics, industrial economics, behavioral economics, labor economics, corporate finance and international trade. 

    A non-exhaustive list of topics (and examples of applications) covered in the course include:

    • consumer preferences and demands (Do people make consistent choices? Do Giffen goods really exist?);
    • expenditure functions and welfare measurement (What is the efficiency loss of the US food stamp programme?);
    • market equilibrium and the welfare gains of shared information (What are the efficiency gains of mobile phone coverage along the Indian 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?);
    • basic concepts for solving static games (with applications on oligopoly, public good provision, trade and tariffs, voting, law enforcement);
    • dynamic games and reputation models (with applications on advertising, limit capacity, price guarantees, collusion);
    • games with incomplete information (with applications on contract design, signaling, incentives, and auctions).

  • Learning outcome

    By the end of the course, the student will

    Knowledge

    • 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;

    Skills

    • be able to formulate small scale microeconomic models;
    • be able to identify what kind of data is necessary to test the models;

    General competence

    • manage to formulate precise questions about resource (mis)-allocation in strategic and non-strategic settings and understand the microeconomic tools to address these questions.        

  • Teaching

    Regular lectures which, depending on the corona regulations issued by the management and/or (local) gorvernment, may be replaced by Zoom lectures.

    Regular lectures will be made digitally available via Canvas. 

  • Required prerequisites

    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 2018/19). Each part will be preceded by a lecture 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

    None.

  • Assessment

    Two compulsory written assignments (100%) (50% each).

    The assignments can be handed in individually or in groups of max. two students. They will be posted around the end of the first and second parts of the course, and students will be given roughly two weeks to complete the assignments. The assignments must be written in English.

    Students can retake each component independently.

  • Grading Scale

    Grading scale A - F.

  • Literature

    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).

Overview

ECTS Credits
7.5
Teaching language
English.
Semester

Spring. Offered spring 2021.

Course responsible

Professor Fred Schroyen, Department of Economics.

Associate professor Justin Valasek, Department of Economics.