MICROECONOMICS-2

This first year course aims to introduce market equilibrium analysis from a microeconomic point of view. In this course students study consumer’s and producer’s decisions and the way these individual decisions contribute to the process of price determination in the market. The course addresses both perfect and imperfect competition.

1. Knowledge and understanding:
1.1. understand the decision process of individuals as consumers and workers, as well as the decisions of business firms, and their interactions in various market structures;
1.2. understand the welfare implications of public intervention in markets;
1.3. recognise the characteristics of the different market structures and their implications for firms’behaviour.

2. Ability to apply knowledge and understanding:
2.1. use the supply and demand model to determine changes in market equilibrium;
2.2. analyse the choices of individuals (as consumers and as workers) and firms using marginal analysis and the notion of opportunity cost;
2.3. assess equilibrium welfare and its variations associated to public policies and market structures;
2.4. be able to recognise individual decision, strategic decision and asymmetric information situations.

3. Ability to make judgments:
3.1. interpret market outcome and prices;
3.2. understand the function, merits and limitations of using economic models;
3.3. prepare students for independent economic thinking about economic and policy issues on the basis of an analytical method.

It is advisable to have a course in Mathematics. In particular, students must be able to draw and interpret functions of two variables, to solve simple systems of two equations and to take derivatives.

FIRST PART
- Demand, supply and market equilibrium. Elasticity.
- Consumer choice: demand curve and Engel curve, income and substitution effects. Labour supply. Intertemporal choices.
- Firm choice: production function and returns to scale, cost function, average and marginal cost, economies of scale.

SECOND PART
- Profit maximization for a price-taker firm
- Competitive equilibrium.
- Market intervention: price floors, tariffs and quotas.
- Monopoly: equilibrium and deadweight loss. Regulation of monopolies.
- Pricing policies: perfect price discrimination, two-part tariffs, multimarket discrimination.
- Game theory: dominance and Nash equilibrium in static games. Sequential games.
- Oligopoly: Cournot models with homogeneous goods.
- Introduction to choices under uncertainty.
- Asymmetric information: adverse selection and moral hazard.

D. Bernheim and M. Whinston, Microeconomia (third edition), Mc-Graw Hill Italia, 2017.
M.C. Molinari, Esercizi di Economia Politica (second edition), Cafoscarina, 2017.
A detailed syllabus is available on Moodle.

75 minutes written examination with open questions and exercises analogous to those given in the practice sessions and in the exercise book. The passing grade is 18; points assigned to each question are clearly indicated in the exam.
You can take the exam in two partial written exams, at mid- and end-of-course.
The examination tests the student’s understanding of the topics covered in the course and his/her ability to analyse closely related problems and to interpret their results.
Two written examinations from the previous year can be found on the Moodle platform and their solution is presented in class.

Lectures
Exercise lectures
Individual assignments
Students are urged to read the material before class, actively participate in class discussion and attempt the assigned problems (available on Moodle) before attending the exercise lectures.

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