Microeconomics for Economic Policy
Microeconomics studies how individual market participants, like households and firms, make their choices
from the alternatives available to them. It also studies how such choices interact in the market to
determine prices and resource allocations. A thorough understanding of microeconomics will be useful for
any economic course students will take in the future and will provide an invaluable analytical framework
for addressing a number of economically-relevant questions. Examples of such questions are the
following: how do firms set wages for their employees? How do firms set prices for their products?
Should the government regulate monopolistic firms?
The first half of the course is devoted to the study of consumer and producer theory and it will illustrate
the ideal circumstances under which the market solves the allocation problem and in which sense. The
second half of the course is devoted to those problems which arise when those ideal circumstances fail to
exist and it will carefully discuss whether some form of government intervention should be invoked to
improve upon the market allocation. Some game-theoretical concepts which help model the interaction
between economic agents will be introduced.
Successful completion of the course enables students to:
• understand and formalize the optimizing behavior of market participants;
• understand and formalize how interaction among market participants generates market outcomes
in different settings;
• understand and formalize the notions of partial and general equilibrium;
• understand under what assumptions markets are efficient;
• understand and formalize the inefficiencies arising from non-competitive market structures;
• examine several causes of market failures and explore the options available to policy makers to
• understand and formalize strategic interaction between economic agents;
• understand and formalize the behavior of market participants in the presence of uncertainty.
A student's grade in this course will be a weighted average of his/her performance on the homework
assignments and the exams. The weights are as follows:
a) Homework assignments: 25%;
b) Midterm exam: 35%;
c) Final exam: 40%.
The number of homework assignments is yet to be determined. The assignments will be available on the
course website. Students are encouraged to work in groups. Solutions to the homework assignments
must be handed in to the teaching assistant (or uploaded to the course website) before the seminar and
will be graded. During the seminars, the solutions will be presented.
There will be two exams: a midterm exam and a final exam. Both exams will be closed-books and
students cannot bring any personal notes. The exams will consist of both theoretical questions and
Active class participation is strongly encouraged.
Knowledge of basic calculus is not a strict requirement, although it would be
tremendously helpful. Because of the crucial role of marginal reasoning in microeconomics,
during the course we will often make use of the tools of differential calculus.