Master
2024/2025
Microeconomics for Financial Economists
Type:
Elective 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
Open to:
students of one campus
Master’s programme:
Strategic Corporate Finance
Language:
English
ECTS credits:
6
Course Syllabus
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
- 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
- analyze collusion in a Bertrand game
- analyze collusion in a Cournot game
- analyze demand for insurance and show the relationship between demand for insurance and probability of loss/size of insurance premium
- analyze demand for risky asset for an investor with quadratic preferences
- analyze demand for risky asset in a model with two assets
- analyze remedial policies based on Pigovian taxes/subsidies
- analyze separating and pooling equilibria in the signalling model of education
- analyze simultaneous-move games using dominant strategies or by eliminating dominated strategies either once or in an iterative fashion
- analyze Stackelberg leadership
- analyze the choice of savers/borrowers using the consumer choice model
- analyze the decision to supply labor
- analyze the effect of price and income changes on demand
- analyze the entry and exit decisions of firms and their impact on industry supply
- analyze the infinitely-repeated Prisoners' Dilemma game with discounting and analyze collusive equilibria using trigger strategies
- analyze the problem of adverse selection in the market for lemons
- analyze the problem of price discrimination by a monopolist under adverse selection
- analyze the profit-maximizing choice by the monopolist and the associated social losses from market power
- calculate Nash equilibria in pure strategies in sequential-move games
- calculate Nash equilibria in pure strategies in simultaneous-move games
- calculate subgame-perfect Nash equilibria in pure strategies in sequential-move games
- calculate the Arrow-Pratt absolute/relative measure of risk aversion for different specifications of the von Neumann-Morgenstern expected utility function
- calculate the expected value of a lottery
- calculate the market equilibrium price and quantity given supply and demand curves
- calculate the parameters of LR market equilibrium (price, quantity, output of a single firm) given information about demand and firms’ LR costs
- compare and comment on the differences between SR and LR consequences of government interventions in a perfectly competitive market
- compute and illustrate the social losses from the free rider problem
- compute social losses from market power in various oligopolistic equilibria
- construct an Edgeworth box and depict the contract curve
- construct market demand function from individual demand functions
- define and explain the reasons behind the law of diminishing marginal returns
- define the concept of economies/diseconomies of scale, describe its possible causes
- derive the firm’s short-run and long-run profit-maximizing output level
- derive the firm’s short-run and long-run supply function
- derive the optimal input purchasing decision of a firm in the short run
- derive the short- and long run cost function of a firm
- describe the assumptions on the consumer's preferences and explain their implications
- describe the concept of modelling preferences using a utility function
- describe the concepts of substitution effect, income effect and endowment effect of a price change, characterize their influence on consumer choice
- draw budget lines for different prices and values of monetary/in-kind income
- draw indifference curve diagrams starting from verbal descriptions of their preferences or the utility function of a consumer
- explain and visualize the interrelations between short- and long-run marginal, average variable and average cost curves
- explain the concept of elasticity of substitution and its implications for a firm’s reaction to changes in input prices
- explain the concept of isoquants and marginal rate of technical substitution
- explain the concept of returns to scale
- explain the concepts of average and marginal product and their relationship
- explain the concepts of marginal cost, average cost, fixed/quasi-fixed cost, sunk cost and variable cost
- explain the notions of own-price/cross-price/income elasticities of demand and the implications of different values of these elasticities for consumer behavior
- explain the short- and long-run shutdown decision of a firm; identify its SR and LR shutdown price
- identify the type of returns to scale for a given production function
- illustrate the direction and magnitude of substitution/income/endowment effects of a price change; compute their numeric values
- solve for the cost-minimizing allocation of output between multiple plants
- solve the consumer's utility maximization problem and derive the demand for a consumer with a given utility function and budget constraint
- visualize a firm’s short- and long-run cost minimization problem using the isoquant/isocost map
Course Contents
- <MScF> consumer choice
- <MScF> Uncertainty
- <MScF> producer theory
- <MScF> General equilibrium and welfare.
- <MScF> Market structures: perfect competition
- <MScF> Market structures: monopoly. Price discrimination.
- <MScF> Market structures: oligopoly. Elements of game theory.
- <MScF> Market failures: externalities and public goods.
- <MScF> Market failures: asymmetric information.
