Microeconomics 1

Main course materials

The main reference for my half of the course is my lecture notes. Please regularly check that you have the latest version. I last updated the notes at 12:00AM, Thursday 15 of October. You can see what changed using Adobe Acrobat Pro on the uCreate computers. Choose Tools -> Compare Documents, and select the PDFs containing the old and new versions of the notes. You can download the Latex source if you want to annotate or contribute improvements to the notes.

You can read the Assessment guide with practice exam questions and sample solutions with commentary.

News

You can browse last year's course materials, which follow a similar schedule.

• Week 5
  • We will do equilibrium existence (5.6) and the second welfare theorem (5.7).
  • Homework: 5.3, practice questions 33, practice question 46.
  • I am happy to write recommendations letters for everyone. There is no minimum mark (although higher marks mean stronger letters).
• Week 4
  • We will do economies (5.1), efficient allocations (5.2), equilibrium (5.3), Walras law (5.4), the first welfare theorem (5.5), and model formulation.
  • If we run out of time, please watch these videos:
    • Optional: Watch Economies (5.1). You can read the whiteboard.
    • Optional: Watch Efficient allocations (5.2). You can read the whiteboard.
    • Optional: Watch Equilibrium (5.3). You can read the whiteboard.
    • Optional: Watch Model formulation. You can read the whiteboard.
    • Optional: Watch First welfare theorem (5.5).
    • Optional: Watch Walras law (5.4). You can read the whiteboard.
  • Homework: 5.2, practice questions 5(i)-(iv) and 6(i)-(v).
• Week 3
  • We will cover the following topics. If we run out of time, please watch the videos:
    • Time preference (4.1), no video.
    • Finite horizon dynamic programming (4.2), no video.
    • Watch Utility functions and the utility maximisation problem (3.1, 3.2). We covered this in lecture.
    • Watch Income effects get in the way (3.3) . You can read the whiteboard.
    • Watch Isolating the substitution effect (3.4) . You can read the whiteboard.
    • Watch Slutsky equation (3.5) . You can read the whiteboard.
  • Homework: 2.16, 3.1, 3.4, 4.2, 3.6, 3.7.
• Week 2
  • All students should now have access to Learn, which has the lecture recordings and homework submission instructions.
  • We will cover the following topics. If we run out of time, please watch the videos:
    • Optional: Watch Comparative statics (finishing 2.3). You can read the whiteboard.
    • Optional: Watch Dynamic programming (2.4). You can read the whiteboard.
    • Optional: Watch Constrained envelope theorem (starting 2.5). You can read the whiteboard.
  • Homework: 2.10, 2.11, 2.12, 2.5 (not 2.15). It is due at 5pm on Wednesdays. Please submit on Learn, with one submission per group.
  • Errata:
    • The dynamic programming video incorrectly states that the firm does not overshoot the production target if the production function has free disposal. This is condition is wrong. It should be that the production function is continuous.
• Week 1. We will cover the following topics. If we run out of time, please watch the videos:
  • Optional: watch Naive Set Theory (B1, B2, B3) and Naive Set Theory (B4, B5, B6), which will help you understand the notation in the course. Note: these videos were primarily designed for other courses about proofs (including Mathematical Microeconomics 1), but I think many students will find these videos helpful. You can read the first and second whiteboard.
  • Optional: watch Production functions 1 (2.1). You can read the whiteboard.
  • Optional: watch Concave production functions (D and 2.1). You can read the whiteboard.
  • Optional: watch The firm's problem (2.2). You can read the whiteboard. Note: this lecture includes lots of non-examinable material about the chain rule and the implicit function theorem.
  • Watch The envelope theorem (2.3). You can read the whiteboard.
  • Homework: 2.1, 2.2, 2.6, 2.7, 2.8, 2.9. This is done in groups, and is due next week. It will be discussed in your tutorials next week.
  • Errata:
    • In the last step of the chain rule proof of the envelope theorem (minute 26), the partial derivative should be with respect to a, not b.
    • In the lazy decision maker proof of the envelope theorem, I sometimes confused Rupert Murdoch's sons, Lachlan and James. Only James is relevant to the proof.
• If you want to learn more mathematics, you can take Mathematical Microeconomics 1 instead.

Assessment

Details on the assessment (including the marking criteria) are included in the practice question file. Two students kindly donated their marked exam scripts in 2017-8. Note that the December and May exams are marked on the same scale.

Extra Reference

Some students like an extra reference, although it is unnecessary. I will only test knowledge from my notes. The references below are also available as a clickable reference list via the library.

Material marked with a star in the notes will only be tested in bonus questions; it is possible to get a distinction in the class without learning the starred material. My notes are closer to Varian and Kreps than MWG, but quite different from all of them. Ambitious students who would like a strong background in mathematics might want to read Maxwell Rosenlicht's (1968) "Introduction to Analysis" or Luenberger's (1969) "Optimization by Vector Space Methods". Angel de la Fuente's (2000) "Mathematical Methods and Models for Economists" is also helpful.

MWG means Mas-Colell, Whinston and Green's (1995) "Microeconomic Theory". V means Varian's (1992) "Microeconomic Analysis". K means Kreps' (1990) "A Course in Microeconomic Theory". KK means Kreps' (2013) "Microeconomic Foundations 1: Choice and Competitive Markets". SL means Stokey and Lucas (1989), "Recursive Methods in Economic Dynamics". Debreu (1960) is Topological methods in cardinal utility theory.

1. Introduction
2. Production
   1. Production Functions   See: V1, MWG5, K7.1
   2. Profit Maximization   See: V2, MWG5, K7.2
   3. Upper Envelopes and Value Functions   See: V3, SL4, MWG5, K7.2
   4. Cost Functions and Dynamic Programming   See: V4, SL4, MWG5, K7.3, K.A.2
   5. Upper Envelopes with Constraints   See: V5, SL4, MWG5, K7.3
3. Consumption
   1. Utility Functions   See: V7, MWG3, K2.1
   2. Utility Maximization   See: V7, MWG3, K2.2
   3. Consumer’s Value and Policy Functions   See: V7, MWG3, K2.2, K2.3
   4. Expenditure Function and Policy Functions   See: V7, MWG3, K2.2, K2.3
   5. Slutsky Decomposition   See: V8, MWG3, K2.3
4. Time
   1. Time Preference   See: Debreu (1960), V19, SL4, SL5, MWG20, KK2.5
5. Equilibrium
   1. Economies   See V17, V18, V19, MWG16, K6.1, K6.2
   2. Efficient Allocations   See V17, V18, V19, MWG16, MWG22, K5.2
   3. Equilibrium   See V17, V18, V19, MWG16, K6.1
   4. Characterising Equilibria   See V17, MWG15, MWG16, MWG20, K2.2
   5. Efficiency of Equilibria   See V17, MWG16, K6.3
   6. *Existence of Equilibria   See V17, MWG17, K6.4
   7. Implementation of Efficient Allocations   See V17, MWG16, K6.3