AECO 23A10 - Microeconomics: information, design and institutions

Lectures. The aim of this course is to teach the basics of microeconomics along three main lines of investigation. It first inquires about models of decision-making. Any textbook starts with a model of how economic agents make decisions regarding consumption and production. People must decide what to buy, for which price, and how much money to save. Entrepreneurs must forecast how much labor and capital to mobilize as inputs, and how to coordinate them together. This course teaches the basics of the standard model of economic choice for consumers and firms, that is, consumer theory and producer theory. The second part of the class touches upon models of equilibrium. A key feature of economics is that it is interested in what happens when economic agents, consumers and producers, interact. For example, in an economy with many consumers and producers, how are prices determined? Which mechanism ensures equilibrium between supply and demand? This is the study of market equilibrium. Market equilibrium gives rise to the study of welfare and the effect of public intervention on such welfare. The last part of the class investigates situations of imperfect markets, that is, situations where markets fail to deliver an equilibrium, which satisfies all parties. Such circumstances occur when firms enjoy the (market) power to set prices above their (marginal) cost of production. The specific cases of monopoly and duopoly, whether Cournot, Stackelberg or Bertrand, are envisaged. The last part of the course presents extensions to imperfect markets by looking at natural monopoly, price discrimination and monopsony power applied to the labor market. If time allows, an introduction to modern industrial organization theory (modern IO) is proposed by looking at Hotelling's (1929) and Salop's (1979) models of product differentiation. Tutorials. Each lecture is backed by a two-hour tutorial consisting of a series of home assignments that pupils must prepare beforehand. Home assignments should require approximately two hours of preparation altogether. Tutorials always start with a short quiz that is immediately corrected. We then move on to correcting exercises in a more interactive fashion, where students may intervene at any time they wish.

Lionel NESTA

Cours magistral et conférences

English

Course Materials This course will be loosely based on ‘Intermediate Microeconomics: a Modern Approach' (9th edition) by Hal Varian, Norton 2014 (previous editions should work too). However, the course should also be self-contained. Everything you need will be presented in class and/or available on the class website. The textbooks are useful, but by no means essential.

Autumn 2024-2025

Student assessment Final grades will take into account homeworks, short in-class quiz, the midterm and the final according to the following weighting scheme: 2/3 given by the seminar mark (mid-term exam, quiz, exercises, participation); 1/3 given by the final exam. The mid-term and the final exams are composed of a quiz, one or two short-essay questions, one or two exercises.

Course outline: Chapter 1. Introduction. Welcome to intermediate microeconomics at SciencesPo. The realms of economics. Ontological assumptions about human behavior. Basic principles. Organization of the course. Chapter 2. Consumer Theory. 21. Consumer preferences and utility. The utility function. Indifference curves. The marginal rate of substitution. 22. Budget constraints and optimal choice. The budget constraints. The optimal choice. Income and substitution effects. 23. Consumer demand. Deriving consumer demand. From individual to market demand. Demand elasticities. 24. Extension to consumer theory. Intertemporal choices. Uncertainty. Revealed preferences. Chapter 3. Producer theory. 31. Firms and production. What is a company? Production. 32. Isoquant and isocost. Isoquant. Isocost. The optimal choice of the producer. 33. Returns to scale. The firm expansion path. A formal definition of returns to scale. Returns to factor input and returns to scale. 34. The supply function. Definition of costs. The cost function. Marginal cost and the supply function. Measuring profits. Chapter 4. Market equilibrium. 41. Market equilibrium. Market demand and supply. Conditions for perfect competition. Market equilibrium. Short-run and long-run market equilibrium. 42. Welfare analysis. Consumer and producer surplus. Pareto optimality and the first theorem of welfare. The Edgeworth box and the second theorem of welfare. 43. Public intervention on markets. Maximum price. Minimum price (version 1). Minimum price (version 2). Taxes. Subsidies. Chapter 5. Imperfect competition. 51. Monopoly. Definition of a monopoly. The monopoly model. Welfare implication of a monopoly. 52. Duopoly. Cournot. Stackelberg. Collusion. Bertrand. 53. Extensions. Natural monopoly. Price discrimination. Monopsony.