Module Code and Title:       CET103 Intermediate Microeconomics

Programme:                          BA in Development Economics

Credit Value:                         12

Module Tutor:                       Tshering Lhamo Dukpa

General objective: This builds upon Introductory Microeconomics (CET101) and prepare students to apply advanced analytical tools to model agents’ behaviour in partial and general equilibrium frameworks. It trains the students to evaluate the impact of distortions in the market structures, and explores the ways to correct market failure. 

Learning outcomes – On completion of the module, students will be able to: 

1. Explain economic agents’ 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. Examine the results of, and methods used in, expected utility theory.
5. Describe the pattern of interaction between various microeconomic decisions. 
6. Apply economic theory to diverse real-world situations.
7. Differentiate between partial and general equilibrium 
8. Outline the problems related to the more common economic assumptions (rationality, equilibrium reasoning, and optimisation).
9. Examine general equilibrium framework and Pareto efficiency conditions. 
10. Analyse welfare loss resulting from market distortions.
11. Apply microeconomic models to design solutions to practical economic issues

Learning and Teaching Approach: 

Assessment Approach:

1. Assignment: 10 Marks

Each Student will be given a task related to problem solving in terms of decision making for consumers and firms. The assignment should have a maximum limit of 750-850 words. 

1    Identification of a problem

1    Solution framework/methods 

1    Use of appropriate tools

5    Solution to the stated problem 

2    Explanation

2. Class Tests: 10 Marks 

Two written tests will be conducted that will comprise 45 minutes duration, 5 marks each, from Unit I before the mid-term and from Unit V after mid-term.

3. Quizzes: 10 Marks

Two online quizzes (5 marks each) from Unit II before midterm, and from Unit VI after the mid-term. 

4. Case Study: 10 Marks

In groups of 4-6 students will be tasked with applying the theoretical concepts used in units II, III and VI in the form of a case study. Report word limit: 750-900 words. 

1    Situation analysis

1    Methodology of group work

5    Discussion on findings in the joint report

3    Peer review of individual reports 

5. Midterm Examination: 20 Marks

Students will take a written exam of 1.5-hr duration covering topics up to the mid-point of the semester. The exam will comprise structured questions like MCQ, fill-in-the-blanks, matching, definition, as well as open-ended essay questions.

6. Semester-End Examination: 40 Marks

Students will take a written exam of 2.5-hr duration encompassing all the subject matter covered in the semester. This assessment is comprehensive and summative in nature, and will comprise structured questions like MCQ, fill-in-the-blanks, matching, definition, as well as open-ended essay questions.

Overview of assessment approaches and marks

Pre-requisites: CET101 Introductory Microeconomics 

Subject matter:

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

Reading List:

Essential Reading

Bernheim, B.D. & Whinston, M.D. (2016). Microeconomics. Tata McGraw-Hill (India).

Perloff, J.M. (2015). Microeconomics. Pearson.

Pindyck, R., Rubinfeld, D. & Mehta P. (2018). Microeconomics. 7th Ed. Pearson.

Varian, H.R. (2014). Intermediate Microeconomics: A Modern Approach. 

W.W. Norton and Company/Affiliated East-West Press (India). The workbook by Varian and Bergstrom may be used for problems.

Additional Reading

Snyder, C. & Nicholson, W. (2010). Fundamentals of Microeconomics. Cengage Learning (India).

Espinola-Arredondo, A., & Munoz-Garcia, F. (2020). Intermediate Microeconomic Theory: Tools and Step-by-Step Examples. The MIT Press.

Date: June 2022