Dottorato in Economia Politica XXX Ciclo

Microeconomics 1
(Prof. D. Tosato a.y. 2014-2015)

The aim of the course of Microeconomics 1 is to cover the basic notions of the theory of
consumer choice, profit maximization, choice under uncertainty and partial equilibrium in the
standard models of perfect competition, monopoly, oligopoly and monopolistic competition.
This is the material largely covered, and in a masterly way, in chapters 1-6, 10 and 12 of
MasColell, Winston and Green, Microeconomic Theory. A few topics have been added in the
parts dedicated to the study of consumption theory and choice under uncertainty. The
presentation will focus on the basic notions; exercises will be assigned as part of homework
and solutions verified in class; in-depth analysis following MasColells finer points will
depend on time available and the level of preparation and interest of the participants to the
course. The references are limited to basic and well known textbooks. Specific references to
particular topics will be given in class.
Microeconomics 2 covers game theory, asymmetric information and incentives. Social choice
theory and welfare economics form part of the course of Political Economy. General
equilibrium theory, which occupies part IV of MasColells textbook, remains yet to find a
proper room in the overall program of the Doctorate.

Program of the course

1. Consumption
Preference orderings: basic properties and axioms. Preference and utility. The utility
maximization problem.
The expenditure minimization problem. Utility maximization and expenditure minimization:
duality results.
Income, substitution and price effects. Comparative statics. The Slutsky decomposition in the
general case.
The choice approach: the weak axiom of revealed preference.
Intertemporal models of consumption.
Discrete choice models.
Models of other-regarding preferences
Market demand
2. Choice under uncertainty
Expected utility theory: Preferences over lotteries. Expected utility. Subjective probability and
expected utility.
Allais paradox. Ellsberg paradox. Non expected utility theory
Measuring risk. Standard measures of risk aversion.
Insurance. Asset selection. The Capital Asset Pricing model.

Consumption in the presence of risk. Precautionary saving.

3. Production
Technology. Profit maximization.
Cost minimization. Cost curves. Supply in a competitive market.
4. Competitive markets
The partial equilibrium model.
Competitive equilibrium and welfare properties
5. Market power (basic notions)
Monopoly. The deadweight welfare loss of monopoly. Monopoly practices
Basic oligopoly models
Monopolistic competition: the Dixit-Stiglitz model

References
General
Mas Colell, A. Whinston, M.D. and J.R. Green, (MWG) Microeconomic Theory, Oxford
University Press, 1995, ch. 1-6, 10, 12.
Jehle, J.A. and P.J. Reny, (JR) Advanced Microeconomic Theory, Second edition, Addison
Wesley, 2001, Ch. 1-4
Kreps, D.M., A Course in Microeconomic Theory, Princeton University Press, 1990, ch. 2-3,
7-10
Rubinstein, A., Lecture Notes in Microeconomic Theory - The Economic Agent, Princeton
University Press, 2007(?), available in the web at Rubinsteins page
Varian, H., Microeconomic Analysis, Third Edition, W.W. Norton, 1992, ch. 1-14, 19
Specific
Barten, A. P. and V. Bohm, Consumer Theory, in Handbook of Mathematical Economics,
vol. II, pp. 381-429
Guiso, L. e D. Terlizzese, Economia dellincertezza e dellinformazione, Hoepli, 1994
Rabin, M., Psychology and Economics, in Journal of Economic Literature, 1998, vol. 36,
pp. 11-46
There are Lecture Notes prepared by the lecturer, partly in English and in Italian,
covering a large part of the course. They are under revision and extension of the Lecture
Notes prepared for last year course, that are already available to the participants to the
PhD program. The Lecture Notes have references specific to the various topics
examined.