CEU, Economics Department

Lecturers: Prof. Leif Danziger
                  Prof. Andrzej Baniak
Course:    5 credits


Course Description:
The course considers the behavior of individual agents. It includes a general treatment of
individual choice and develops the classical theories of consumer and producer behavior. The
course also covers partial equilibrium analysis. The material will entail formal mathematical analysis.

The required textbook for this course is:
Mas-Colell, A., Whinston, M., and Green, J. (1995): Microeconomic Theory, Oxford University

Course Outline:

1. The Consumer

Preference and Choice: Mas-Colell: Ch. 1

Consumer Choice, Demand Functions, and Comparative Statics: Mas-Colell: Ch. 2

2. Classical Demand Theory

Utility Maximization, Expenditure Function, Indirect Utility, Duality: Mas-Colell: Ch. 3

3. Aggregate Demand

Aggregate Demand and Aggregate Wealth, the Weak Axiom: Mas-Colell: Ch. 4

4. Production

Profit Maximization, Cost Minimization, Aggregation: Mas-Colell: Ch. 5

5. Choice under Uncertainty

Expected Utility, Risk Aversion, State-Dependent Utility: Mas-Colell: Ch. 6

6. Competitive Markets

Pareto Optimality and Competitive Equilibria, the Fundamental Welfare Theorems:
Mas-Colell: Ch. 10

7. Externalities and Public Goods

Externalities, Public Goods, and Second-Best Solutions: Mas-Colell: Ch. 11

8. Market Power

Monopolies and Oligopolies: Mas-Colell 12


Prof. Andrzej Baniak
October 6 Building, Room 813


The course consists of two parts. In the first part we present the elements of general equilibrium.  In particular, we discuss
efficiency, existence, uniqueness and stability of equilibrium. The second part of the course is devoted to economics of
information. This is a relatively new field in microeconomics, which seeks to understand organizations, institutions and
relationships between individuals when there are differences in personal objectives.
During the course both rigour and intuition will be emphasized.


During the course students will be asked to solve the problems. They can handle the solution in written or (preferably)
electronic form.  Every solved problem will count at most 10% of the grade. There will be final exam which counts for at
least 50% of the grade.

Main textbooks

During the course we will use mainly the following textbooks:
For the first part:
• Mas-Collel, Andreu, Michael D. Whinston, and Jerry R. Green, Microeconomic Theory, New York:  Oxford Univ.  Press,
1995. (MWG-95)
For the second part:
• Bolton, Patrick and Mathias Dewatripont, Contract Theory, Cambridge, Mass.:  MIT Press, 2005. (BD-05)
• Salanié, Bernard, The Economics of Contracts.  A Primer, Cambridge, Mass.:  MIT Press, 1997. (Salanie-97)
• Laffont, Jean- Jacques and David Martimort, The theory of incentives; the principal-agent model, Princeton:
Princeton Univ.  Press, 2002. (LM-02)


1. Theory of General Equilibrium
(a) Introduction to General Equilibrium – MWG-95, ch. 15
(b) Welfare theorems and Pareto optimality– MWG-95, ch. 16
(c) Existence, uniqueness and stability of equilibrium – MWG-95, ch. 17
(d) Core and equilibria– MWG-95, ch. 18.B
2. Economics of Information
(a) Static models of Screening:  – Salanie-97, ch.2,3; BD-05, ch. 2; LM-02, ch. 2,3;
(b) Static Moral hazard; – Salanie-97 ch.5; LM-02, ch. 4; BD-05, ch. 4;
(c) Multidimensional Incentive problems – BD-05, ch. 6;
(d) Dynamics of complete contracts – Salanie-97 ch. 6; BD-05, ch. 11,12; LM-02 ch. 8