Microeconomics, Institutions and Welfare

Course goals

Learning objectives 
At the end of the course, the student is able to:

• Explain the core concepts and models of microeconomics, including consumer behaviour, firm behaviour, and market equilibrium.
• Use graphical and algebraic methods to analyse supply, demand, and price formation under perfect competition.
• Explain how market equilibrium is determined and assess its implications for efficiency and welfare.
• Analyse markets with market power and identify sources of market failure such as externalities and public goods.
• Apply basic microeconomic reasoning to interpret outcomes in real-world markets.

Content

This course introduces the core concepts and analytical tools of microeconomics. Microeconomic theory studies how individuals and firms make decisions and how these decisions interact in markets to determine prices, quantities, and welfare, and how institutions shape these outcomes. As such, it forms the foundation of modern economics and underlies many other courses in the U.S.E. curriculum. The course makes use of graphical and algebraic methods, drawing on the analytical tools developed in Mathematics (ECB1WIS).

We begin by analysing the behaviour of consumers and firms. On the demand side, we study how preferences and budget constraints shape individual choice and how individual decisions aggregate into market demand. We examine how demand responds to changes in prices and income, and how these responses can be represented graphically and formally.

On the supply side, we analyse firms’ production decisions and cost structures. We derive firm supply and show how industry supply emerges from the behaviour of individual firms. Bringing supply and demand together, we determine market equilibrium under perfect competition and examine its efficiency and welfare properties, and the role of institutions in supporting these outcomes.

The course then extends this basic framework to markets in which the assumptions of perfect competition do not hold. We analyse monopoly and other forms of market power, as well as situations in which market outcomes may be inefficient, for example, due to external effects or public goods. Throughout the course, the emphasis is on developing a clear understanding of how economic models explain market outcomes and how they can be used to analyse real-world markets, including how institutional arrangements and policy can improve welfare.

Academic skills
This course focuses on the following academic skills:

Analytical skills:

• Problem solving (identifying the problem, devising a path towards the solution, following this path, verifying the outcome) for specific questions. 
• Being able to identify, interpret and critically evaluate the main line of reasoning for specific questions. 

Academic reasoning:

• ​Thinking conceptually, thinking in terms of theory.
• Analysing questions from different perspectives. 
• Identifying links between problems. 

Assessment method

• Mid-term examination (100% multiple-choice) on the course material of the 4 weeks (25% of the final grade);
• End-term examination (multiple-choice and open questions) on the course material of all weeks (75% of the final grade);

The examinations are closed-book examinations consisting of open questions and multiple choice questions, respectively. The academic skills (academic reasoning and problem solving) are tested in all examinations.
 
Effort requirements 

• 80% attendance of all tutorials
• Scoring a sufficient number of points in the weekly multiple-choice tests. The minimum norm will be specified in the course manual.

If you have met the effort requirements, you are entitled to join the retake arrangement.
For this course, the student is expected to spend the recommended 20 weekly hours, 4 hours weekly tutorials (complemented by the lecture) and the remaining hours practising the assignments to attain optimal performance and the highest return on this course.

Course repeaters 
Students who signed up for the course in (one or more of the) previous years, and did not drop the course in time, and failed the course, will participate in the repeaters programme: they may visit all lectures but should study the weekly materials by themselves. Course repeaters are not required to meet the effort requirements, but must have achieved a final grade of at least a (non-rounded) 4 in order to be eligible for the retake exam.

With respect to the teaching format, this implies that course repeaters:
•        ​Have each week one (regular) lecture;
•        ​Have weekly Q&A sessions;
•        ​Have one mid-term (25%) and one end-term exam (75%)

In case online access is required for this course and you are not in the position to buy the access code, you are advised to contact the course coordinator for an alternative solution. Please note that access codes are not re-usable meaning that codes from second-hand books do not work, as well as access codes from books with a different ISBN. Separate or spare codes are usually not available.