Microeconomic Theory I ECON6004 Syllabus

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1 Dr. Jan Keil University of the West Indies Department of Economics Mon 9-11am, Tue 2-4pm Sequence Description: & II This course introduces students to graduate level Microeconomic theory. It is the first part of a sequence of two graduate classes, and II (which will also be offered by Dr. Keil in semester II 2014). It is highly recommended that the courses are taken together. Both will focus primarily on Neoclassical mainstream Microeconomic theory. However, roughly 30% of the material will be devoted to alternative approaches - the modern Classical general equilibrium framework, Austrian economics and alternative views within Neoclassical thought (e.g. the Chicago School). deals with partial and general equilibrium models under standard assumptions of (perfect) competition and perfectly functioning markets. I is concerned with the deviations from the perfectionist model (market power, external effects, imperfect and asymmetric information) and extensions of Microeconomics (through e.g. game theory). Course Description: The focus lies on concepts of general and partial equilibrium under the assumptions of perfect competition and perfect markets. This includes production theory as well as household choice, intertemporal choice and utility theory. The concepts of exchange, equilibrium, value, price and income/distributions are to be analyzed. While the Neoclassical approach is of prime importance, we will also identify the limitations of the theory. Preceding and current alternative concepts will be presented such as the von Neumann model or the Leontief and Sraffa systems. jan.keil@uwimona.edu.jm. Office address: Room E208 McIntyre Building. Office Phone: (876) , Extension Office hours: tbd and by appointment. There will be a third time slot for make-up sessions that compensate for losses resulting from the late arrival of the instructor and from potential school shut downs due to hurricanes. 1

2 Page 2 Learning Objectives The course aims at developing the students competence to: Comprehend advanced standard Microeconomic theory and recent developments and discussions in the field Distinguish between Neoclassical and Classical concepts of value, price, distribution, production and equilibrium and identify the potentials and the limits of different approaches Analyze, evaluate and solve real world examples and problems with Microeconomic tools and techniques Evaluate, expose and reflect on practical and theoretical Microeconomic matters in a clear, cogent, creative and critical way Teaching Methodology There will not be a clear distinction between tutorial and lecture as separate events. Rather, each session will be divided into subsections that consist of 1. a lecture where the instructor presents the core course material; 2. a tutorial with discussions of problem sets and lecture material; 3. a seminar where additional texts will be presented and discussed. Every session will have a lecture (roughly 45% of total session time), most will have a tutorial (35%) and some will have a seminar (20%). Required Work & Assessment In order to successfully complete this course, students have to attend the sessions, read the required material, hand in problem sets, present solutions for problem sets or additional readings and pass the final examination. Problem Sets & Presentations [50%] Problem sets are assigned as home work on a weekly/bi-weekly basis and have to be handed in within a week. They cover the material presented in the lecture and will be corrected, graded and returned. In addition to that, every student will present at least one solution to a problem set and/or an additional reading from the list of topics below. The grade for problem sets will be based on the home work handed in and on the presentations of solutions and readings. Final Exam [50%] The final in-class exam will be written after classes end. It will cover all of the material touched upon in the course. Lateness Policy Late submissions of assignment are not accepted since solutions will be presented in the tutorial section. If you have a circumstance that you believe should excuse you from this penalty, inform the instructor as soon as possible before the due date of the assignment and explain how many days of work you lost because of the difficulty.

3 Page 3 Attendance Policy Class attendance is required. There is no penalty for the first two missed sessions. Each additional absence, unless legitimately excused, will result in a deduction of 5 (out of 100) points from your total grade. Course Material Core readings The two main texts for the course are: Varian, Hal R. (1992): Microeconomic Analysis, 3rd Edition; W.W. Norton & Company Inc.; New York, NY. Pasinetti, Luigi (1977): Lectures on the theory of production; Columbia University Press; USA. Students should obtain a copy of the former book. Since the latter book is not easily available, printed copies of the used sections will be distributed. Additional readings There are several individual additional readings that are listed in the respective sessions below. It is always indicated if a reading is required or recommended (additional). If not easily obtainable, they will be made available on the course web page or distributed as printed copies in class. More additional readings will be added to the syllabus to what is listed already. List of Topics & Course Structure Students must complete the required reading before class. Failure to do so will have a negative impact on your ability to follow the material and successfully finish the assignments. Make sure you schedule enough time to prepare the assigned material, take notes, prepare questions and revise each session. Week 1 Week 2 Introduction, Organization, Overview Review of Mathematical Techniques Introduction and Basic Tools Topics: analysis, functions, sets; optimization; matrix algebra Required Readings: Pasinetti, Mathematical Appendix: pp ; Varian, Chapter 26 & 27: pp Additional Readings: Abbott, Stephen (2001): Understanding Analysis; Springer-Verlag; New York. Production Theory

4 Page 4 Week 3 Neoclassical Production Theory I: Technology Topics: Cobb-Douglas production functions: derivation, properties Required Readings: Varian, Chapter 1 Week 4 Neoclassical Production Theory II: Cost Topics: Cost minimization, cost functions, Shepard s lemma, short and long run Required Readings: Varian, Chapters 4, 5 Additional Readings: Schefold, Bertram (1989); Production Costs in Neoclassical Theory; in: Mr. Sraffa on Joint Production and Other Essays; Unwin Hyman; London; pp Week 5 Neoclassical Production Theory III: Profit Topics: Profit maximization Required Readings: Varian, Chapters 2, 3 Week 6 Classical Production Theory I: Leontief Topics: The Leontief production function and input-output models Required Readings: Pasinetti, Chapters 2-4 Additional Readings: Leontief, Wassily (1986): Input-Output Analysis; in: Input-Output Economics, Second Edition, Oxford University Press, New York; pp Week 7 Classical Production Theory I: The Sraffa System Topics: The circulating capital model, labor values, prices of production, the standard commodity, fixed capital, joint production Required Readings: Pasinetti, Chapter 5, Subsections 1-5, 7, Appendix to Chapter 5. Additional Readings: Shaikh, Anwar (1977): Marx s Theory of Value and the Transformation Problem; in: The Subtle Anatomy of Capitalism; Jesse Schwartz (ed.); Goodyear Publishing Co. Week 8 Marginal Utility and Choice Household Choice, Utility, Demand Topics: Preferences, (indirect) utility functions, Roy s identity, Slutsky equation Required Readings: Varian, Chapters 7-8

5 Page 5 Week 9 Demand Topics: endowments and constraints, demand functions, consumer surplus, aggregation Required Readings: Varian, Chapters 9-10 Week 10 Foundations General Equilibrium Topics: fixed point and separating hyperplane theorems, von Neumann, dynamic models Required Readings: Pasinetti, Chapter 7; Hahn, F. H. and Matthews, R. C. O. (1964): The Theory of Economic Growth: A Survey, The Economic Journal, Vol. 74, No. 296; pp Additional Readings: von Neumann, John, A model of general economic equilibrium, Review of economic studies, 13(1945-6):1-9 Week 11 Neoclassical General Equilibrium Theory I Topics: Exchange, Edgeworth box; Walras law, Pareto sets, trading and Walrasian equilibria Required Readings: Varian, Chapters 17, 18 Week 12 Neoclassical General Equilibrium Theory II Topics: Tatonnement, welfare economics and theorems Required Readings: Varian, Chapters 21, 22 Week 13 Limitations and Critique Topics: Neoclassical capital theory, reswitching of technique Required Readings: Pasinetti, Chapter 6 Additional Readings: Han, Zonghie and Schefold, Bertram (2006): An Empirical Investigation of Paradoxes: Reswitching and Reverse Capital Deepening in Capital Theory; Cambridge Journal of Economics 30.5; pp