Module Code and Title:       CET102          Intermediate Microeconomics

Programme:                          BA in Development Economics

Credit Value:                         12

Module Tutor:                       Sonam Yeshey

General objective: This module builds on the module on introductory microeconomics to introduce students to the formal and more advanced analytical tools for the modelling of a micro-economy. It explores the efficiency and equity implications of competition and other market structures, and provides a perspective on the role of government. It deals with issues such as consumer choice, production and cost, market structure, and market failure. Intermediate Microeconomics places greater emphasis on the application of the concepts to real world problems.

Learning outcomes – On completion of this module, learners should be able to:

1. Explain consumers’ and firms’ behaviours using mathematical tools.
2. Differentiate between the choices made by economic agents under various risk scenarios.
3. Describe the determinants of consumer choices, including inter-temporal choices.
4. Explain the results of, and methods used in, expected utility theory.
5. Describe the pattern of interaction between variousmicroeconomic  
6. Apply economic theory to diverse real-world situations.
7. Outline the problems related to the more common economic assumptions (rationality, equilibrium reasoning, and optimisation).
8. Analyse economic problems and prescribe solutions.
9. Describe economic situations in a logical and precise manner.

Learning and Teaching Approach: This module will be taught by means of lectures, tutorials, workshops and self-directed study. Lectures will aim at explanation of various concepts and theories. These will be complemented by tutorials for self-exploration and group problem solving. In workshops, students will be divided into smaller groups of 5-6 and to work on a problem statement to collectively find solutions.

Assessment Approach:

A. Individual Assignment: Portion of Final Marks: 15%

Students will be given a task related to problem solving. The assignment should have a maximum limit of 300 words.

• 3%       Identification of a problem
• 1%       Use of appropriate tools
• 2%       Solution framework
• 6%       Solution
• 3%       Explanation

A. Class Test: Portion of Final Marks: 10%

Two written tests will be conducted that will comprise 45 min duration and cover 4 weeks of material. Approximately half of the questions will aim at explaining and applying a model.

B. Quiz: Portion of Final Marks: 10%

Two combined written/oral assessments, on the ability to explain basic concepts of preferences, utility and cost curves, asking 5 questions to each student.

C. Group Work: Portion of Final Mark: 10%

In groups of 4, students will be tasked with applying the concepts of general equilibrium and welfare analysis in the form of a case study. Report word limit: 600 words.

• 1%       Situation analysis
• 1%       Methodology of group work
• 5%       Discussion on findings in the joint report
• 3%       Peer review of individual reports

D. Midterm Examination: Portion of Final Mark: 15%

Students will take a written exam of 1.5 hr duration covering topics up to the mid-point of the semester. 

Pre-requisites: CET101 Introductory Microeconomics

Subject matter:

1. Consumer Theory
   • Preferences, utility, utility functions and indifference curves
   • Budget constraint and consumer’s choice (apply optimisation approach for problem solving)
   • Demand
   • Revealed preference-WARP and SARP
   • Income offer curves and Engel curve
   • Slutsky equation, compensated demand curve, net and gross demand, offer curve
   • Choice under uncertainty; expected utility function
   • Risk and inter-temporal choice; risk aversion; asymmetrical information
   • Consumer’s surplus; compensating and equivalent variation; producer’s surplus
2. Market
   • Construction of market demand
   • Inverse demand function
   • Elasticity of demand; constant elasticity demand; relation between AR, MR and price elasticity
   • Supply; inverse supply function
   • Comparative statics
   • Deadweight loss
3. Producers Theory
   • Technology and isoquants
   • Cobb Douglas production function
   • Production with one and more variable inputs
   • Returns to scale
   • Types of costs; short run and long run costs: TC, AC, AVC, AFC and MC
   • Revenue: TR, AR and MR
   • Review of perfect competition
4. General Equilibrium
   • Edgeworth box and Pareto Efficiency
   • Algebra of equilibrium; Walras’ law, Existence of equilibrium
   • Equilibrium and efficiency; algebra of efficiency
   • Efficiency and welfare Equilibrium
   • Efficiency under pure exchange and production
   • Overall efficiency and welfare economics
5. Market Structure and Game Theory
   • Monopoly; pricing with market power
   • Price discrimination; peak-load pricing; two-part tariff
   • Profit maximising decisions under monopolistic competition and oligopoly
   • Game theory and competitive strategy
6. Externalities and Market Failure
   • Production and consumption externalities
   • Quasilinear preferences and Coase theorem
   • Three interpretations of externalities
   • Tragedy of commons
   • Networking externalities and their implications
   • Public goods, private provision of public goods, different levels of public goods
   • Free riding, voting, demand revelation, Clarke tax
   • Market for lemons, adverse selection, Moral hazard
   • Signalling and incentives

Reading List:

1. Essential Reading
   • Pindyck, R., Rubinfeld, D. & Mehta P. (2009). Microeconomics. 7th Ed. Pearson.
   • Varian, H.R. (2010). Intermediate Microeconomics: A Modern Approach.W. Norton and Company/Affiliated East-West Press (India). The workbook by Varian and Bergstrom may be used for problems.
2. Additional Reading
   • Bernheim, B.D. & Whinston, M.D. (2009). Microeconomics. Tata McGraw-Hill (India).
   • Perloff, J.M. (2015). Microeconomics. Pearson.
   • Snyder, C. & Nicholson, W. (2010). Fundamentals of Microeconomics. Cengage Learning (India).

Date: January 15, 2016