Microeconomics III

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The aim of the course is to familiarize students with the application of microeconomics to analyze economic problems. The principal topics covered in the course are: market equilibrium, market failures, the role of government, externalities, public goods, asymmetric information, and welfare economics.

The aim of the course is to familiarize students with selected topics from the field of microeconomics:

• the concept of partial equilibrium in a final goods market;

• government intervention in a competitive and monopoly markets (including different forms of taxes, tariffs, import quotas, subsidies, price limits, quantity restrictions, intervention purchases, direct payments) and their influence on prices, sales, consumer and producer surplus, economic efficiency, deadweight loss;

• fundamental concepts and tools of welfare economics – the pure exchange model, the concept of general equilibrium, the Edgeworth Box, Walras’ Law, theorems of welfare economics;

• production and the First Theorem of Welfare Economics, production and the Second Theorem of Welfare Economics, comparative advantage, Pareto efficiency;

• preference aggregation, social welfare function, welfare maximization;

• externalities, internalization of externalities, Pigouvian tax, Coase theorem;

• the concepts of public and club goods, free riding, the Vickrey-Clarke-Groves voting mechanism;

• the fundamental topics concerning asymmetric information (ex ante and ex post) – including adverse selection, moral harard, incentive compatibility, the principal-agent model, market for lemons, signaling.

Required readings:

• Varian Hal R. (2019), Intermediate Microeconomics: a modern approach, W.W. Norton (ebook format is not available in a library)

• Bergstrom T.C., H.R. Varian (2009), Test bank for Intermediate Microeconomics A Modern Approach, W.W.Norton

Additional readings:

• Bergstrom T.C., H.R. Varian (2014), Workouts in Intermediate Microeconomics, W.W. Norton

• Borland J. (2008), Microeconomics: case studies and applications, Cengage Learning Australia

• Mansfield E., G.W. Yohe (2003), Microeconomics: theory and applications, W.W. Norton

• Mansfield E., J. Peoples (2003), Microeconomic Problems: case studies and exercises for review, W.W. Norton

• Pindyck, R.S., D.L. Rubinfeld (2018), Microeconomics, Prentice Hall (available in ebook format)

Upon completion of the course the student:

- understands the concept of partial equilibrium in the final goods market and in the factor market;

- knows the most important instruments of government intervention in the market, understands their influence on prices, sales, consumer and producer surplus, as well as budget revenue;

- can analyze basic general equilibrium models and formulate conclusions from Walras’ Law and theorems of Welfare Economics;

- has knowledge concerning the functioning of motivational taxes correcting for market failures;

- knows the concepts of adverse selection, signaling and screening, moral hazard, participation constraint and incentive compatibility constraint;

- can interpret economic phenomena with relation to changes in demand and supply functions, prices and quantities of goods which are traded in market transactions;

- can solve typical problems for equilibrium prices and quantities, surpluses, efficiency and budget revenue under various assumptions regarding the market structure;

- can develop and present economic argumentation

- can select the appropriate economic instruments for achieving certain goals;

- can foresee the influence of applying these instruments on social welfare and its redistribution;

- can define the difference between and efficient and a fair distribution of resources;

- can identify market failures such as externalities and public goods, as well as efficiency losses resulting from them, and is able to formulate suggestions of ways of constraining them;

- can solve basic models with asymmetric information, including the principal-agent model;

- can indicate differences between various social choice methods, as well as their strengths and weaknesses.

The final grade is calculated on the basis of a weighted average of the scores received for the following components (the weights are in brackets):

a) active participation in class (25%) – the group lecturer decides how to score the points (e.g. tests, homework, solving tasks, etc.)

b) participation in a debate or/and a presentation (15%) - it is up to the group lecturer to decide which of these elements to implement and under what conditions, but at least one of these elements must be implemented

c) final exam (a total of max 30 tasks) as a single-choice test 60% – jointly for all groups of the course, range of material (theory and exercises) consistent with the topics covered by the “Full description” (note, that the topics covered by above (b) will be excluded)

In order to pass the course, it is required to obtain at least 50% of the maximum exam score AND at least 50% of the maximum total score obtained from a), b), and c).

In the retake session it is only allowed to retake the exam.

Applied tools - video platforms for remote learning approved by the University of Warsaw and additional supporting tools selected by the group lecturer.

Attendance verification – the rules will be announced by each lecturer during the first class.

Grading scale:

points (%) grade

<0,50) 2

<50,60) 3

<60,70) 3,5

<70,80) 4

<80,90) 4,5

<90,100> 5