Microeconomic Theory

Aim

On completion of the course, the student should be able to - account for and by means of mathematical analytical methods derive relationships in central parts of microeconomic theory, including consumption theory, production theory, equilibrium theory and welfare theory. - On a theoretical level analyse microeconomic issues by means of these theories

Content

The following is covered in the course - Basic assumptions, derivations and concepts within consumer theory. Utility function, indirect utility function and expenditure function. Optimum consumption over time. Compensating variation and equivalent variation. - Basic assumptions, derivations and concepts within production theory. Production function, cost function in the short and long run. Profit maximisation in the short and long run. - Partial equilibrium in a market with perfect competition in the short and long run. The effects of a disturbance under naive and rational expectations. - Equilibrium in a monopoly and the effects of a disturbance under various assumptions about the expectations of the monopolist. - General equilibrium, existence and stability. - The basics of welfare theory. The Pareto criterion, the Pareto efficiency and the Pareto optimality. The Kaldor-Hicks compensation criterion. Pareto efficiency and perfect competition, the first and second theorem of welfare theory. - Market imperfections and political imperfections. Monopoly. Externalities and the Coase theorem. Common land. Public goods. The theory of the second best. Political imperfections - The von Neumann-Morgenstern utility theory and the basics of research theory.