Microeconomics 1

Semester and Year Offered: 1st Semester, 1st year

Course Coordinator and Team: Taposik Banerjee

Email of course coordinator: taposik[at]aud[dot]ac[dot]in

Pre-requisites: Graduation level Microeconomics and Mathematics.

Aim: The course is a foundational course for a post graduate student of economics. The two courses, Microeconomics 1 and 2 together will help students learn the fundamental theories of microeconomics. The course introduces students to the theory of consumer behavior, theory of production and cost, theory of firms and supply and theory of markets. The aim of this course is to give students the conceptual basis and the necessary tools for understanding modern microeconomics at the post graduate level. The emphasis is on understanding concepts and principles underlying the theory, and applying them to derive quantitative solutions.

Course Outcomes:

On successful completion of this course students will be able to:

1. Provide a rational explanation of behaviour of the individuals and firms that interact in an economy.
2. Apply the framework that economists use to analyse choices made by individuals and explain how these choices may also serve the social interest.
3. Describe the mechanism behind different forms of market.
4. Use mathematics in formalising and analysing an economic problem.
5. Develop and sustain an argument using the concepts that are commonly used by economists.
6. Discuss the limitations and the domain of application of standard economic theories.
7. Analyse simple economic problems in a game theoretic framework.

Brief description of modules/ Main modules:

The course covers the following broad areas: (a) theory of consumer behaviour (b) choice theory (c) theory of production and cost (d) imperfect competition (e) uncertainty (f) game theory. In the theory of the consumer behaviour and in the theory of choice we would discuss the demand side of the economy. Theory of production and cost would be dealing with relationship between technology and costs. The course revisits some basic market structures under imperfect competition. Finally we would discuss how decisions are made under conditions of uncertainty. The following would be the broad outline of the course.

1.Theory of consumer behaviour

• Preference and Utility
• Indirect utility and expenditure
• Consumer demand
• Revealed preference

2 Choice Theory

• Choice function
• Concept of Rationalizability
• Characterization of Rationalizable choice functions

3. Theory of production and cost

• Production technology
• Cost
• supply

4.Markets and partial equilibrium

• Perfect competition
• Imperfect competition
• Equilibrium and welfare

5. Theory of Uncertainty

• Simple and compound Lotteries
• Expected utility
• Risk aversion

6. Game Theory

• Static Games of Complete Information along with some applications in economics
• Mixed Strategies and Existence of Equilibrium
• Dynamic Games of Complete Information
• Two-Stage Games of Complete but Imperfect Information

Assessment Details with weights:

Three class tests with following weights: Test 1 (25%), Test 2 (35%) and Test 3 (40%).

Test 1 will be a class test based on material covered during first half of the semester.

Test 2 will be a class test based on material covered during second half of the semester.

Test 3 will be an end of semester class test based on all material covered in the course.

Reading List:

• Varian, Hall R., (1992), Microeconomic Analysis (Third Edition), W.W. Norton & Company, New York, London.
• Kreps, David M.(1998), A Course in Microeconomic Theory, Prentice Hall, India, New Delhi
• Mas-Colell, Andreu, Michael D.Whinston and Jerry R. Green, (1995), Microeconomic Theory, OUP, New York
• Jehle & Reny, Advanced Microeconomic Theory, Pearson Education, India

ADDITIONAL REFERENCE:

• Sen, A., 1970. Collective Choice and Social Welfare, Holden-Day.
• Rubinstein A., Lecture Notes in Microeconomic Theory: The Economic Agent. Princeton University Press