Graduate Microeconomics

Term: Spring 2010

Subject Code: GECO

Course Number: 6190

This course examines how microeconomics explains the behavior of economic agents. We start with the primitive: An (microeconomic) agent chooses between alternative options to optimize her objective subject to a constraint. We analyze how this choice is made under the following conditions: [1] agents have well-defined property rights, [2] agents are price-takers, [3] agents have all the relevant information in making their choices, and [4] agents are consistent in making their choices. Next we analyze how behavior of the agent changes when each of these conditions are relaxed. Accordingly, the course is divided in the following parts: Part 1 focuses on modeling households, firms, and markets when the above mentioned three conditions hold. Here we review the theory of consumer choice; the theory of the cost-minimizing and profit-maximizing competitive firm; cost functions and industry equilibrium; demand and supply, particularly applied to the labor market. In Part 2 of the course, we relax the condition that ‘agents have well-defined property rights’. Here we explore the problem of market failure due to externalities and public good. In Part 3 of the course we relax the condition that ‘agents are price takers’. Here we analyze the models of imperfect competition and the basic concepts of game theory. In part 4 of the course, we relax the condition that agents have all the relevant information in making their choices’. Here we examine the problem of choice under uncertainty; the problem of incomplete and asymmetric information in market interactions, including the issues of moral hazard, adverse selection, and signaling. In Part 5 of the course we relax the condition that ‘agents are consistent in making their choices’, and touch upon the procedural aspects of decision making.

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