COURSE SYLLABUS



COURSE SYLLABUS

FOR ADVANCED MICROECONOMIC THEORY

School of Finance

Renmin University

Spring, 2004

Course: Advanced Microeconomic Theory II

Instructor: Guoqiang Tian

Professor of Economics

E-mail: gtian@tamu.edu



Lectures: Monday 8:30 -- ?? and Wednesday 2:00pm -??

Text: The course will be mainly based on my lecture notes and will use one textbook and a number of other readings that list in the end of each chapter of my lecture notes. The textbook is Varian, Microeconomic Analysis. The lecture notes can be downloaded from my website.

Course Grades: You will be evaluated on the basis of a series of homework problems and two exams. Homework will be handed out periodically. Your grade will be calculated using the method list below.

Homework: 20%

Exam 1: 40%

Exam 2: 40%

Course Objectives: This course is devoted to discuss basic results in the microeconomic theory. It studies how an individual selects an appropriate action or making an appropriate decision. Microeconomic theory is founded on the premise that these individuals behave rationally, making choices that are optimal for themselves and how the markets are organized. It will cover topics in consumer theory, producer theory, choice under uncertainty, game theory, the theory of markets, general equilibrium theory, welfare economics, social choice, public goods, and externalities. The purpose of the course is to introduce some advanced theories and analytical tools and the types of questions that are used and answered in each area. The topics covered in this course are important since they are either basic analytical tools that are used in many fields of economics or basic economic theories that will be needed in your future study and research.

Tentative Topics Outline:

The lecture are divided into five parts.

Part I. Review of modern economics and mathematics as well as partial equilibrium theory: Nature and role of modern economics, the standard analytical framework of modern economics, key assumptions commonly adopted in microeconomics, partial equilibrium theory, theory of markets, perfect competition, monopoly, monopolistic competition, oligopoly, monopsony, roles of mathematics, language and methods of mathematics, continuity and concavity of functions, separating hyperplane theorem, constrained and unconstrained optimization, correspondences (point to set mappings), fixed point theorems, KKM lemma, maximum theorem.

Readings: Chapters 26-27 of Varian and Chapter 1 of my lecture notes.

Part II. Individual Decision Making: consumption set and budget constraint, preference, utility maximization, indirect and expenditure functions, integrability problem, duality, revealed preferences, recoverability, income-leisure choice model, aggregation across goods and consumers, production technology sets, profit maximization, cost minimization, properties of profit and cost function, choice under uncertainty, lotteries, expected utility, risk aversion, state dependent utility, and subjective probability theory.

Readings: Chapters 1-9, 11 of Varian and Chapters 2-4 of my lecture notes.

Part III: Strategic Behavior and Markets: game theory, description of a game, solution concept, Nash equilibrium dominant strategy equilibrium, repeated game, refinement of Nash equilibrium, sequential game, subgame perfect equilibrium, games with incomplete information, Bayesian-Nash equilibrium, the partial equilibrium theory, theory of markets, perfect competition, monopoly, monopolistic competition, oligopoly, monopsony.

Readings: Chapters 13-16 of Varian and Chapters 5-6 of my lecture notes.

Part IV. General Equilibrium Theory and Social Welfare: Perfectly competitive markets, exchange economies, general equilibrium with production, equilibrium with transfer payments, and existence, uniqueness, and stability of general equilibrium, Pareto efficiency, the First and Second Theorems of Welfare Economics, economic core, welfare functions, characterizations of efficient social outcomes, social choice rules, Arrow's impossibility theorem.

Readings: Chapters 17-18, and 21 of Varian and Chapters 7-9 of my lecture notes.

Part V Externalities and Public Goods: Consumption externality (preference externality), production externality, competitive equilibrium with externalities, Pigovian taxes, voluntary negotiation a la Coase, compensatory tax/subsidy, creating a missing market with property right, public goods, efficient provision of public goods, Lindahl equilibrium, and free-rider problem.

Readings: Chapters 23-24 of Varian and Chapters 10-11 in my lecture notes.

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