COURSE SYLLABUS
FOR ADVANCED MICROECONOMIC THEORY
School of Finance
Renmin University
Spring, 2004
Course:
Advanced Microeconomic Theory II
Instructor:
Guoqiang Tian
Professor of Economics
E-mail: gtian@tamu.edu
http://econ.tamu.edu/tian
Lectures:
Monday 8:30 -- ?? and Wednesday 2:00pm -??
Text:
The course will be mainly based on my lecture notes and will use one textbook and a number of other
readings that list in the end of each chapter of my lecture notes. The textbook is Varian,
Microeconomic Analysis. The lecture notes can be downloaded from my website.
Course Grades: You will be evaluated on the basis of a series of homework problems and two exams. Homework
will be handed out periodically. Your grade will be calculated using the method list below.
Homework:
Exam 1:
Exam 2:
Course Objectives:
This course is devoted to discuss basic results in the microeconomic theory. It studies how an
individual selects an appropriate action or making an appropriate decision.
Microeconomic theory is founded on the premise that these individuals behave rationally,
making choices that are optimal for themselves and how the markets are organized. It
will cover topics in consumer theory, producer theory, choice under uncertainty, game
theory, the theory of markets, general equilibrium theory, welfare economics, social
choice, public goods, and externalities. The purpose of the course is to introduce some
advanced theories and analytical tools and the types of questions that are used and
answered in each area. The topics covered in this course are important since they are
either basic analytical tools that are used in many fields of economics or basic economic
theories that will be needed in your future study and research.
Tentative Topics Outline:
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The lecture are divided into five parts.
Part I. Review of modern economics and mathematics as well as partial equilibrium theory: Nature and role of
modern economics, the standard analytical framework of modern economics, key assumptions commonly
adopted in microeconomics, partial equilibrium theory, theory of markets, perfect competition, monopoly,
monopolistic competition, oligopoly, monopsony, roles of mathematics, language and methods of mathematics,
continuity and concavity of functions, separating hyperplane theorem, constrained and unconstrained
optimization, correspondences (point to set mappings), fixed point theorems, KKM lemma, maximum theorem.
Readings: Chapters 26-27 of Varian and Chapter 1 of my lecture notes.
Part II. Individual Decision Making: consumption set and budget constraint, preference, utility maximization,
indirect and expenditure functions, integrability problem, duality, revealed preferences, recoverability, incomeleisure choice model, aggregation across goods and consumers, production technology sets, profit
maximization, cost minimization, properties of profit and cost function, choice under uncertainty, lotteries,
expected utility, risk aversion, state dependent utility, and subjective probability theory.
Readings: Chapters 1-9, 11 of Varian and Chapters 2-4 of my lecture notes.
Part III: Strategic Behavior and Markets: game theory, description of a game, solution concept, Nash equilibrium
dominant strategy equilibrium, repeated game, refinement of Nash equilibrium, sequential game, subgame
perfect equilibrium, games with incomplete information, Bayesian-Nash equilibrium, the partial equilibrium
theory, theory of markets, perfect competition, monopoly, monopolistic competition, oligopoly, monopsony.
Readings: Chapters 13-16 of Varian and Chapters 5-6 of my lecture notes.
Part IV. General Equilibrium Theory and Social Welfare: Perfectly competitive markets, exchange economies,
general equilibrium with production, equilibrium with transfer payments, and existence, uniqueness, and
stability of general equilibrium, Pareto efficiency, the First and Second Theorems of Welfare Economics,
economic core, welfare functions, characterizations of efficient social outcomes, social choice rules, Arrow's
impossibility theorem.
Readings: Chapters 17-18, and 21 of Varian and Chapters 7-9 of my lecture notes.
Part V Externalities and Public Goods: Consumption externality (preference externality), production externality,
competitive equilibrium with externalities, Pigovian taxes, voluntary negotiation a la Coase, compensatory
tax/subsidy, creating a missing market with property right, public goods, efficient provision of public goods,
Lindahl equilibrium, and free-rider problem.
Readings: Chapters 23-24 of Varian and Chapters 10-11 in my lecture notes.
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