ECONOMICS Advanced Microeconomic Theory TENTATIVE COURSE OUTLINE

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1 ECONOMICS Advanced Microeconomic Theory TENTATIVE COURSE OUTLINE INSTRUCTOR: Maria Gallego OFFICE: P3100 OFFICE HOURS: Tuesday and Thursday 11:30 am 1:00 pm or by appointment PHONE: x 2635#; mgallego@wlu.ca COURSE DESCRIPTION: An in-depth study of microeconomic theory and its applications as represented by in the textbook, articles in academic journals and other contemporary literature. Many important economic problems can be represented using agent s payoff (utility, welfare, profits) that depend on the agent s choice but may also depend on the choices of other agents. Examples include the firm s price, output and entry decisions in oligopolistic markets and the free rider problem. Topics may include moral hazard, adverse selection, principal-agent interactions, problems relating to insurance markets, co-operation through self-interest and endogenous market structure. PREREQUISITES: Students should have a good understanding of intermediate microeconomic theory course, either EC270 and EC370 and should be comfortable using the tools and analytical techniques developed in the introductory calculus course (MA100 or MA130) and the statistics course (EC255). COURSE OBJECTIVES: The student will learn: (i) how we model economic decision-making; (ii) understand the inter-relationship among verbal, graphic, and mathematical presentations of economic models; and (iii) be able to solve models and problems verbally, graphically, or mathematically. BOOK: Some chapters of Microeconomic Theory: Basic Principles and Extensions Eleventh Edition (2012) by Walter Nicholson and Christopher Snyder. South Western Cengage Learning. This book was used in EC270 and EC370. Extensive in-class problems will be given graded using clickers. You can purchase the clickers at the bookstore. You must register your clicker on the My Learning Space website (see registration procedure below) All the notes for the course will be posted in the course website: My Learning Space. Course website: The course website is in My Learning Space (MyLS) at wlu.ca. Your default username and password are the same as you use for Novell, i.e. the same as you use for Laurier . But note that all Laurier students will be required to change their passwords when log in the first time in January. Web page contains announcements, lecture notes, samples of past exams, and a discussion board. You should consult the webpage regularly. Maria Gallego EC 470 Advanced Microeconomic Theory - Syllabus 1 of 5

2 CLICKER REGISTRATION You are responsible for purchasing your clicker from the Laurier Bookstore. You are required to register your clicker online via MyLearningSpace ( ). When you login you will see a course called Clicker Registration for Winter To register your clicker, follow these steps: 1. Enter the Clicker Registration for Winter 2015 course by clicking on the title 2. From the homepage, click on the Click here to register your clicker link 3. Enter your clicker serial Remote ID in the box provided. 4. Click on the Register button. Please note: Failure to register your clicker in this way may result in loss of clicker marks. You have up to the end of week 2 (January 16, 2015) to register your clicker. You MUST complete the registration to have your clicker marks assigned to you. If you registered your clicker in Fall 2014, you may not need to register again, but please CONFIRM that your clicker is registered in the registration area in MyLearningSpace. If you registered your clicker in previous years, you MUST register it again for this term. The use of a clicker that is not your own is an issue of academic misconduct. In these cases academic misconduct procedures will be initiated for all students involved. Please direct any questions about this process or about clickers in general to clickers@wlu.ca. A clicker troubleshooting station is available at the help desk in the concourse (Waterloo) or in the BRAC (Brantford). EVALUATION The Evaluation of students consists of class participation, an in-class presentation, two tests, and a final exam. The timing and weighting of each of these components is given below. Class participation is worth 5% and will be determined by student response to clicker questions asked in class. Students are responsible for buying a clicker from the bookstore, bringing it to every class and ensuring that the batteries work. Professors will not loan out clickers if students forget to bring them. Class participation will begin in week 2 and will not include Review sessions. Each class will be worth 5 points and the participation mark will be the average of the best 16 (out of 19) scores (i.e. the 3 lowest scores will not count to allow for absences due to illness or forgotten clickers). 2 points are given for attending and answering 75% of the questions asked in each lecture. 3 points are for answering questions correctly. The tests will be held in the regular classroom during the regular scheduled class. Term test # 1 15% Term test # 2 20% Final examination 45% Presentation of news items (see instructions on the discussion board in MyLS) 15% Participation/ clickers 5% You must pass the 80% assigned to the two tests and the final exam to pass this course. Attendance is required in this course. Students missing more 5 classes will have their overall grades reduced by one letter grade per additional missed class. For example, if the final grade is a B+, a student that misses six (6) classes will get a C+ recorded as their final grade. Test 1 is scheduled for Thursday, January 29, 2014, 8:30-9:50 am in P1019 and DAWB. Test 2 is scheduled for Thursday, March 5, 2014, 8:30-9:50 am in P1019 and DAWB. Maria Gallego EC 470 Advanced Microeconomic Theory - Syllabus 2 of 5

3 MISSED TESTS There are NO deferred tests for this course. If your final exam has a higher grade than that one or both of the term tests, half (1/2) the weight of the test(s) with the lower grade shifts to the final. Students who cannot write a regularly scheduled test and have an acceptable excuse will have the percent of the final grade for that particular test added to the final exam. These students must provide written documentation of a religious commitment, illness or family emergency within one week of the scheduled test. Students are advised not to miss tests unless absolutely necessary. The material covered and tested builds on the material previously taught. Thus, failing to understand the material previously taught can hamper your ability to understand subsequent material. The tests are also all cumulative. DEFERRED FINAL EXAMINATION Deferred final examinations are available for those students who have acceptable excuses for not being able to write the final exam. To write a deferred final examination, students must submit a petition to Ms. L. Leeman in the SBE Petitions office (SBE1256), along with supporting documentation. Petitions committees do not look favourably on students who make travel arrangements before the end of the final exam period or who write the final exam and then claim they were ill during the exam. SUGGESTIONS FOR A GOOD TERM Economics provides a series of tools (or models) that allow us to understand how the real economy works. It is not possible to learn to use the tools or models just by reading about them; you need to practice working with these models several times. There are five steps you should follow to learn the material. 1) Read the text before coming to class. 2) Come to class where you will see the materials and concepts for second time. You can interchange 1) and 2) but should do both. 3) Do the assignments given throughout the term (approximately one every two weeks). It is advised that you do the assignments soon after the lectures while the concepts are fresh in your mind. The assignment will teach you how to apply those concepts in a problem setting. The assignments will not be graded, they are provided so you have practice problems that help you learn and apply the material taught in class. 4) If you cannot do all or parts of a particular problem or assignment you have a weakness in that area and need to review the material and perhaps ask question in class or during office hours. 5) Review the lectures, chapters and assignments prior to a test or final exam. ACCESSIBLE LEARNING Students with disabilities or special needs are advised to contact Laurier s Accessible Learning Centre for information regarding its services and resources. Students are encouraged to review the Calendar for information regarding all services available on campus. ACADEMIC MISCONDUCT Wilfrid Laurier University uses software that can check for plagiarism. Students may be required to submit their written work in electronic form and have it checked for plagiarism. The University will levy sanctions on students who have committed--or have attempted to commit acts of academic misconduct. Academic misconduct includes copying an essay, exam or report, allowing someone else to copy one s essay, exam or report, impersonating another person in an exam or test, buying or otherwise obtaining assignments for submission of another person s work as your own. For information on categories of offences and types of penalty, please consult the relevant section of the Undergraduate Academic Calendar. Maria Gallego EC 470 Advanced Microeconomic Theory - Syllabus 3 of 5

4 OUTLINE UNCERTAINTY AND STRATEGY (CHAPTERS 7 AND 8, NICHOLSON AND SNYDER) I. Uncertainty (Nicholson, Ch. 7) week 1 and 2 a. Mathematical Statistics b. Fair Gambles and the Expected Utility Hypothesis c. Expected Utility d. The von-neumann-morgenstern Theorem e. Risk Aversion f. Measuring Risk Aversion g. Methods for reducing risk aversion h. Information i. The State-preference approach to choice under uncertainty j. Asymmetric Information ASSIGNMENT 1 II. Games Theory (Nicholson, Ch. 8) week 2 and 3 a. Basic concepts b. Prisoners Dilemma c. Nash Equilibrium d. Mixed strategies ASSIGNMENT 2 REVIEW SESSION (TUESDAY JANUARY 27) week 4 TEST 1 (THURSDAY JANUARY 29) Games Theory (Nicholson, Ch. 8, cont.) week 5 and 6 e. Sequential games f. Repeated games g. Incomplete information ASSIGNMENT 3 h. Simultaneous Bayesian games week 6 and 7 i. Signaling games ASSIGNMENT 4 REVIEW SESSION (TUESDAY MARCH 3) week 8 TEST 2 (THURSDAY MARCH 5) III. Market Power: Imperfect Competition (Nicholson: Ch. 15) week 9 a. Short-run decisions b. Bertrand Model Maria Gallego EC 470 Advanced Microeconomic Theory - Syllabus 4 of 5

5 c. Cournot model d. Capacity Constraints e. Product Differentiation f. Tacit Collusion g. Long-run decisions: Investment, entry and exit h. Strategic Entry deterrence i. Signaling j. How many firms enter? k. Innovation IV. Market Failure: Asymmetric Information (Nicholson, Ch. 18) week 9 and 10 a. Complex contracts as a response to asymmetric information b. Principal-agent model c. Hidden actions d. Owner manage relationship e. Moral Hazard in insurance f. Hidden types g. Non-linear pricing h. Adverse selection in insurance i. Market signaling j. Auctions ASSIGNMENT 5 V. Externalities and Public Goods (Nicholson, Ch. 19) week 11 and 12 a. Defining externalities b. Externalities and Allocative Inefficiencies c. Solutions to the externality problem d. Attributes of Public Goods e. Public Goods and Resource Allocation f. Lindahl Pricing of Public Goods g. Voting on resource allocation h. A simple political model i. Voting mechanisms VI. Bargaining (Osborne and Rubinstein) IF TIME PERMITS week 11 and 12 a. Nash bargaining game b. A model of alternating offers ASSIGNMENT 6 Maria Gallego EC 470 Advanced Microeconomic Theory - Syllabus 5 of 5