Course Objective

The current course together with E_EC_INTMMIE form a package to equip
the student with the microeconomics tools needed for the subsequent
policy courses in the Master. Policy applications in themselves are not
subject of the current course, but rather their preparation.

• ACADEMIC AND RESEARCH SKILLS: The student can draw economic hypotheses
and draw policy conclusions using his/her knowledge of state-of-the-art
microeconomic theories.
• BRIDGING THEORY AND PRACTICE - KNOWLEDGE: The student understands the
academic literature and recognizes important puzzles addressed by the
field of microeconomics.
• BRIDGING THEORY AND PRACTICE- APPLICATION: The student can address
real-life societal and market challenges by applying relevant theories
and methodologies.
• PROFESSIONAL SOCIAL SKILLS: The student can invoke the relevant
theories to present his/her research findings to expert and non-expert
audiences.
• BROADENING YOUR HORIZON: The student can critically assess the methods
and answers used to address social, societal and economic problems.
• SELF-AWARENESS: The student can independently identify and fill in
his/her gaps in knowl- edge and skills to develop as round
professionals.

Course Content

The course is basically dedicated to the understanding of the causes and
consequences of market failure, and the policies or strategies to
mitigate or even eliminate it.

Topic 1: Externalities and Public Goods
Here we study two common and important situations in which the market
does not deliver efficient outcomes: externalities and public goods.
Then we explore approaches to restore the efficiency of the market
equilibrium: the use of markets for the internalisation of externalities
and tax-cum-subsidy policies.
Concepts: Externalities, Markets for external effects, Property rights,
Public goods, Efficient provision of public goods.

Topic 2: Oligopoly and Game Theory
Here we explore a third source or market inefficiency: market power.
Through the lens of game theory, we explore the (mal)-functioning of
markets in which firms have the ability to influence the price.

Concepts: Extensive and strategic representations of games, Basic
notions of noncooperative games and solution concepts: dominant
strategies; simple dynamics and prisoner’s dilemma, Nash equilibria in
pure and mixed strategies, Games with complete and incomplete
information, Extensions and refinements of Nash equilibrium: subgame
perfectness, and Bayesian games; oligopoly (Bertrand, Cournot and
Stackelberg).

Topic 3: Asymmetric Information and Design
Here we delve into the inefficiency caused by the existence of
asymmetric information in markets, and provide ways in which market
efficiency can be mitigated or even fully restored.
Concepts: adverse selection; pooling and separating equilibria; moral
hazard; principal-agent relations; wage contracts. Mechanism design:
auctions.

Teaching Methods

This is a 3 weeks course, totalling 18 student/teacher contact hours: 12
for lectures, 6 for tutorial sessions.
Each week, there are 2 theory sessions of 2 hours each, and a practice
session of 2 hours.
Students are expected to attend the sessions.

Method of Assessment

The course is good for 3 ECTS credits. The final grade will be awarded
based on two grades as follows:
• Written exam: 75%
• Problem sets: 25 %
The final grade is the weighted average of the written exam and the
problem sets if the former is at least 5.0; otherwise the final grade is
the grade of the written exam.

Entry Requirements

E_EC_INTMMIE INTERMEDIATE MICROECONOMICS

Literature

Snyder and Nicholson, Microeconomic Theory: Basic Principles and
Extensions, 12th ed., CENGAGE Learning.

Target Audience

MA ECON students

Additional Information

The arguments in this course are given in the formal format of
mathematics. Mainstream microeconomics has used mathematics for at least
60-70 years already. Mathematics serves to make economic insights
accesible, understandable and verifiable to the average student. By
using mathematical models, arguments are made precise and can then be
distinguished from (educated) speculations.

Explanation Canvas

All the relevant information about the course will be published in the
CANVAS site of the course.

Recommended background knowledge

Microeconomics at the level of Varian, H. R.
Intermediate
Microeconomics. 8th edition. W. W. Norton, 2010.


Mathematics at the level of Sydsaeter, Knut and
Hammond, Essential
Mathematics for Economic Analysis, Prentice Hall, 3rd
ed., 2008