Advanced Microeconomics

Master 2020/2021

Type: Bridging course (Strategic Corporate Finance)

Area of studies: Finance and Credit

Delivered by: Department of Theoretical Economics

Where: Faculty of Economic Sciences

When: 1 year, 1, 2 module

Mode of studies: offline

Instructors: Yury V. Avtonomov, Alla Fridman, Alexander Viktorovich Karpov

Master’s programme: Strategic Corporate Finance

Language: English

ECTS credits: 5

Contact hours: 90

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Abstract

This course examines how economic decisions are made by households and firms, and how they interact to determine the quantities and prices of goods and the allocation of resources under different market structures. It also studies the equilibrium in presence of externalities/public goods and information asymmetry. The course examines microeconomic policy and the role of government in allocating resources.

Learning Objectives

The objectives of the course are:  to provide students with the knowledge of core concepts and models in the field of microeconomics;  to provide students with the knowledge of basic microeconomic models' assumptions, internal logic and predictions, grounding the explanations on intuitive, graphical and analytical approaches;  to develop students' ability to apply the knowledge acquired to the analysis of specific economic cases, recognizing proper framework of analysis and constructing and analyzing adequate economic model within this framework.

Expected Learning Outcomes

derive the demand for a consumer under monetary and in-kind income;-provide graphical solution of utility maximization problem and perform comparative statics analysis - analyse the eﬀect of price and income changes on demand and explain it using Slutsky equation - analyse the problem of savers and borrowers - analyse the decision to supply labour - evaluate the welfare impact of a price change by calculating consumer surplus
 explain the diﬀerent risk attitudes and what they imply for the utility function  analyse the demand for insurance  explain the concept of diversiﬁcation
derive the cost function in the SR and in the LR, explain the relationship bethween the average and marginal cost curves; explain the supply decision of a price-taking ﬁrm in the short run and in the long run
derive the industry supply curve in the short run and in the long run; calculate the market equilibrium in the SR and in the LR; to evaluate the impact of a variety of tax and subsidy policies on the market; use the measure of welfare to evaluate the impact of different government policies
derive the pure strategy Nash equilibrium and Subgame perfect Nash equilibrium, solve Cournot, Stackelberg and Bertrand games, derive the equilibrium in a game with diﬀerentiated products
explain the concept of externalities and show how externalities lead to market failures; analyse remedial policies; explain the concept of public goods and analyse how private provision leads to an ineﬃciently low provision of such goods; demonstrate how strategic behaviour leads to over-exploitation of open-access resources in simple models;
explain the diﬀerent types of asymmetric information problems; analyse the problem of adverse selection in the market for lemons; analyse separating and pooling equilibria in the signalling model of education; explain informally the impact of moral hazard in a variety of settings
derive the industry supply curve in the short run and in the long run; calculate the market equilibrium in the SR and in the LR;; explain the concept of the incidence of a tax or a subsidy; use the measure of welfare to evaluate the impact of policies

Course Contents

Consumer theory
preferences and utility, budget constraint, consumer choice; demand and comparative statics, Slutsky decomposition choice under in-kind income; labour supply and ntertemporal choice; consumer surplus
Uncertainty
contingent commodities; expected utility and attitude toward risk; demand for insurance; diversification
Producer theory
technologies and their properties; cost minimization (SR and LR); profit maximization and firm’s supply
Perfectly competitive markets
market demand; industry supply; partial equilibrium and efficiency; government policies analysis
Monopoly and monopolistic behavior
pure monopoly; inefficiency and regulation; monopsony; price discrimination
Strategic interactions
basic concepts of game theory; simultaneous quantity competition (Cournot model); first-mover advantage in Stackelberg model; price competition (Bertrand model); differentiated goods
Externalities and public goods
externalities and efficiency loss; regulation (direct regulation, taxes/subsidies, tradable permits; internalization, property rights and Coase theorem); common property resources; public goods and efficiency; free riding problem
Asymmetric information
hidden characteristics and adverse selection; private and government response; hidden action and moral hazard problem

Assessment Elements

module 1 quizes
There are no makeup/retakes for quizzes/midterm. Student gets 0 for the missed quiz/midterm even if a valid document is provided.
module 2 quizes
There are no makeup/retakes for quizzes/midterm. Student gets 0 for the missed quiz/midterm even if a valid document is provided.
midterm test
There are no makeup/retakes for quizzes/midterm. Student gets 0 for the missed quiz/midterm even if a valid document is provided.
Final exam
The exam will be conducted in written form on a zoom platform. To write an exam, a student must connect to zoom using two devices (computer and smartphone) and configure the cameras so that the computer shows the student himself, and the smartphone camera shows his table and computer screen. In case of prolonged disconnection for more than 3 minutes. or in case of multiple breaks, instead of a written exam, the student will have to pass an oral exam to the lecturer (the student will be asked to answer some theoretical questions and solve problems on different topics of the course). . In case of online exam the lecturer may invite a student for an online interview on his/her exam paper, and his/her grade may be corrected based on the outcome of the interview.

Interim Assessment

Interim assessment (2 module)
Course mark is calculated according to the following formula: GFinal=max(0.1GQI + 0.2GQII + 0.25GMidterm+0.45GExam; 0.1GQI + 0.2GQII +0.7GExam), where GQI - average mark for module 1 quizzes; GQII - average mark for module 2 quizzes; GMidterm - midterm mark; GExam – final exam mark. Final mark is calculated out of 100 and then converted to the 10-points scale

Bibliography

Recommended Core Bibliography

Intermediate microeconomics : a modern approach, Varian, H. R., 2014
Microeconomics, Pindyck, R. S., 2018

Recommended Additional Bibliography

Michael Spence. (1973). Job Market Signaling. The Quarterly Journal of Economics, (3), 355. https://doi.org/10.2307/1882010

Course Syllabus