ADVANCED MICROECONOMICS I

CEU, Economics Department

Lecturers: Prof.
Leif Danziger

Prof. Andrzej Baniak

Course:
5 credits

**PART 1**

**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.

**Book:**

The required textbook for this course
is:

Mas-Colell, A., Whinston, M., and Green,
J. (1995): Microeconomic Theory, Oxford University

Press.

**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

**PART 2**

Prof. Andrzej Baniak

October 6 Building, Room 813

**Description**

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.

**Assessment**

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)

**Outline**

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