Details

Instructor: Luciano Andreozzi, luciano.andreozzi [at] unitn.it
Credits: 8 ECTS

Course objectives

The primary purpose of this course is to convey in broad outline the general principles underlying microeconomic theory, and to show how such principles provide general characteristics of economic behaviour. We will examine the behaviour of the two most important sets of economic agents - the individual (household) and the firm, operating under a variety of circumstances. Of particular importance will be an investigation of the problems associated with uncertainty and informational asymmetries. We will look at their consequences both for individual behaviour and firm organisation and behaviour. We will also examine the interaction of agents in markets, and the simultaneous interaction of markets in an economy. There will be some stress on the welfare aspects of markets and on the problems which arise when, for one reason or another, markets fail to operate efficiently. A specific module on game theory will illustrate the basic tools to analyse strategic interactions between individuals and firms, with some applications to oligopolistic markets.

The course aims at providing a rigorous treatment of all the basic topics in microeconomics and game theory. We shall cover:

• Decision theory. Axioms of rationality. Revealed preferences.
• Demand theory. Compensated demand functions. Consumer's surplus and cost-benefit
• analysis
• Decision under uncertainty. Axiomatic foundations of expected utility. Von-Neumann
• Morgernsern utility functions. Open questions: Allais and Ellsberg paradoxes
• Social choice. Arrow's impossibility theorem. Social welfare functionals. Optimal
• resources allocations with private and public goods.
• General equilibrium theory. Walrsasian Equilibrium. First and second theorem of welfare
• economics. Existence and uniqueness of equilibria.
• Production theory. Production possibilities sets. Production functions. Cost functions
• Partial equilibrium theory. Equilibrium in the long and in the short run. Optimality and
• equilibrium.
• Game Theory. Games and strategies. Dominant strategies. Nash equilibrium.
• Sequential games. Games and subgames. Backward induction. Subgame perfect
• equilibrium. Sequential equilibrium
• Applications: Signalling.

Readings

We shall mostly follow:

• D. Kreps: A course in microeconomics

However, some students may find this book either too technical or a bit annoying to read because of its general approach. What follows is a short list of alternative textbooks students may want to have a look at. The book which is best suited for each of them will depend upon his or her level of mathematical sophistication and interest in this topic.

• G. Jehle and P. J. Reny: Advanced Microeconomic Theory
• H. Varian: Microeconomic Analysis

These are two concise books on microeconomics. They are technically demanding, although Varian is probably simpler than Kreps.

• H. Varian: Intermediate Microeconomics

For students who are weak on calculus, this is a very good book to read. It explains carefully all the basic ideas in microeconomics without derivative and integrals. A student who manages to understand this book clearly, can easily step into the more sophisticated books by simply working on calculus. I advice to take this book close at hand in most lectures.

• A. Mas Colell e.a.: Microeconomic Theory

This is the the standard advanced textbok in microeconomics. It is for the ambitious Ph.D student, or for a master student who thinks of applying for a Ph.D or for a mathematician looking for some modestly challenging mathematical problems stemming from economics.

Additional material will be provided during lectures.