Marc Law
Department of Economics
University of Vermont
Fall 2010
Office: Old Mill 338
Tel: 656-0240
Email: Marc.Law@uvm.edu
Office Hours: Wed. 1-3pm
Economics 172
Intermediate Microeconomic Theory
T, TH 11:30am-12:45pm
Lafayette L311
Course Description
This course will involve a detailed analysis of how individual consumers and firms make decisions, and how these individual decisions interact in markets.
Topics covered include the theory of consumer choice, the theory of production, perfect competition, basic welfare economics, monopoly and imperfect competition, externalities and asymmetric information. Economics
172 offers a substantially more in-depth treatment of the topics covered in
Economics 12 (Principles of Microeconomics). The emphasis on the course will be heavily on theory; however, some practical applications of the theory will be covered as well.
Recommended Textbook
Perloff, Jeffery M. Microeconomics, Addison-Wesley.
Course Requirements
While this course is not reading intensive, it will require considerable commitment on your part if you intend to do well. Most students find the material covered in Microeconomic Theory to be conceptually challenging.
Economics 12 AND Math 19 are pre-requisites for this course. If you have not already completed both of these courses prior to enrolling in EC
172, you will be forced to drop the course. If you have trouble with basic algebra and basic calculus, you will find this course difficult. Although the coverage of the course material in the textbook does not make extensive use of calculus, our in-class coverage of the material will use calculus. Hence, most students will it find it hard to do well if they do not attend class regularly.
Your evaluation in the course will be based on periodic homework assignment and three in-class tests (equally weighted). Due dates for the homework assignments will be announced in class. I encourage you to work together on the problem sets, but you must submit your own answers to

95-100%
90-94%
85-89%
80-84%
75-79%
70-74%
65-69%
60-64%
55-59%
50-54%
Below 50 % receive credit. I will not accept late homework assignments except under exceptional circumstances. I will spot check the homework assignments but will not grade each question. If you turn in your homework on time and have made a reasonable attempt to answer each question, you will receive full credit for homework. We will go through the answers to the homework problems in class.
When you turn in your homework assignments, be sure to staple the pages together, otherwise you will not receive credit. My office is not a stationery store.
The weighting of the course requirements is as follows:
Homework Assignments
Test #1 (Thursday, September 30 th )
Test #2 (Thursday, November 4 th )
Test #3 (Tuesday, December 7 th )
Test #1 will be held in-class on the dates shown above. The dates for these tests are non-negotiable. If you do not show up for a test, you will receive a grade of zero! No excuses will be accepted for non-attendance without a documented medical certificate or a letter from the Dean’s office.
Letter grades will be assigned according to the following schedule.
Percentage Letter Grade
25 percent
25 percent
25 percent
25 percent
A+
A
A-
B+
B
B-
C+
C
C-
D
F

Course Outline
Subject to some changes, we will try to cover the following topics in roughly the following order.
1. Introductory material (Chapter 1)
•
Microeconomics as the science of choice
•
Positive versus normative economics
2. The demand and supply model with more mathematics (Chapter 2).
•
Demand curves and demand functions
•
Supply curves and supply functions
•
Market equilibrium
•
Simple comparative statics in the supply and demand model
3. Applying the supply and demand model (Chapter 3)
•
Own price elasticities of demand and supply
•
Cross-price elasticity of demand
•
Income elasticity of demand
4. The theory of the consumer: Part I (Chapter 4)
•
Properties of consumer preferences
•
Turning preferences into utility functions and the nature of utility functions
•
Indifference curves, their properties, and the implicit function theorem
•
The budget constraint
•
Constrained optimization
5. The theory of the consumer: Part II (Chapter 5)
•
Deriving demand functions from the consumer’s constrained optimization problem
•
Income and substitution effects
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Substitution effects and the problems with consumer price index (CPI) measurement
6. The theory of production: Part I (Chapter 6)
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Production functions, fixed versus variable inputs
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Production in the short run (some inputs are fixed)
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Production in the long run (all inputs are variable)
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Returns to scale and technological change
7. The theory of production: Part II (Chapter 7)
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Measuring costs
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The cost minimization problem in the short run
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The cost minimization problem in the long run
8. Perfect competition (Chapter 8)
•
The nature of perfect competition
•
The profit maximization problem: from cost functions to supply functions
•
Competition in the long run and short run

9. The basic welfare economics of the perfectly competitive model (Chapter 9)
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Using demand and supply curves to measure consumer and producer surplus
•
Problems with consumer surplus as a measure of welfare
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Why perfect competition maximizes welfare under perfect competition
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Effect of policies that distort market equilibrium on welfare under perfect competition
10. Monopoly (Chapter 11)
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The monopolist’s profit maximization problem
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Welfare effects of monopoly
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Why do we have monopolies? “Natural” monopolies and government created monopolies. Do monopolies necessarily produce inefficiently?
11. Oligopoly (Chapter 13, section 13.4)
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The Cournot duopoly model as an introduction to oligopoly theory
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Reaction functions and the Cournot-Nash equilibrium
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Comparing the Cournot-Nash duopoly equilibrium with the competitive equilibrium and the monopoly outcome
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The n-firm Cournot-Nash equilibrium and the competitive limit
12. Externalities (Chapter 18)
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Positive versus negative externalities
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The inefficiency of competition in the presence of an externality
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Pigouvian taxes and subsidies as solutions to the problem of externalities
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Allocating property rights to solve externality problems: the Coase
Theorem
13. Asymmetric information (Chapter 19)
•
The market for lemons
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Solutions to the problem of asymmetric information