MICROECONOMIC THEORY I
ECONOMICS 7010
James Alm
Office: 112 Economics
Phone: 492-8291
Office Hours:
TTh 12:30-2:00 p.m.
or by appointment
Fall 1989
Course Description
Economics 7010 is the first of two courses in graduate microeconomic theory. The first semester analyzes optimization
of the consumer and of the firm; the second semester focuses upon equilibrium analysis. The course will emphasize
the development of a set of theoretical tools that can be applied to economic problems of individuals and firms.
There are two ways to analyze optimization. The neoclassical approach uses calculus and marginal analysis. The
modern approach uses set theory. Because it is important to understand both approaches, the course looks at both,
and the design of the course reflects this emphasis.
Course Requirements
There will be two examinations: a midterm exam worth one-third of the final grade, and a comprehensive final exam
worth two-thirds of the final grade. The midterm will come after the completion of the Theory of the Consumer.
There will also be weekly assignments. You are encouraged to work with other students on these assignments.
Although the assignments will not be collected and graded, questions from them will appear on the exams.
The level of mathematical requirements is not great. It is assumed that you are familiar with basic matrix operations,
calculus, and optimization methods. Beyond this, necessary mathematical tools will be developed in the course.
Textbooks
There are four required textbooks. In increasing level of difficulty, they are:
Hal R. Varian, Intermediate Microeconomics (New York, NY: W.W. Norton and Company, Inc., 1987). [VI]
Brian R. Binger and Elizabeth Hoffman, Microeconomics with Calculus (Glenview, IL: Scott, Foresman and
Company, 1988). [BH]
P.R.G. Layard and AA. Walters, Microeconomic Theory (New York, NY: McGraw-Hill Book Company, 1978).
[LW]
Hal R. Varian, Microeconomic Analysis, Second Edition (New York, NY: W.W. Norton and Company, Inc.,
1984). [VII]
There is also a packet of reading material available at Kinko's from:
James M. Henderson and Richard E. Quandt, Microeconomic Theory, Third Edition (New York, NY: McGrawHill Book Company, 1980). [HQ]
Course Outline
I.
Mathematical Review (1 week)
A. Matrices and Determinants
B. Calculus
C.
Unconstrained and Constrained Optimization
D. Nonlinear Programming
E. Set Theory
II.
Theory of the Consumer (7 weeks)
A.
Budget Constraint
B.
Preference Theory
C. Utility Theory
D. Optimization: Utility Maximization
E.
Demand and Comparative Statics
F.
Duality
G. Labor Supply
H . Intertemporal Choice
I.
Uncertainty
J.
Consumer Surplus
K. Revealed Preference
III.
Theory of the Firm (7 weeks)
A.
Production and Technology
B.
Costs
C. Optimization: Cost Minimization and Profit Maximization
D. Comparative Statics
E . Duality
Reading List
I.
II.
III.
Mathematical Review
Theory of the Consumer
A.
Budget Constraint
Preference Theory
B.
C. Utility Theory
D. Optimization: 1,Jtility Maximization
E. Demand and Comparative Statics
F.
Duality
G. Labor Supply
H. Intertemporal Choice
I.
Uncertainty
J.
Consumer Surplus
Revealed Preference
K.
Theory of the Firm
A.
Production and Technology
B. Costs
c. Optimization
D. Comparative Statics
E.
Duality
VI
BH
Textbook
LW
HO
VII
Math App.
1,2,3
App.1
App.
Math App.
5.1-5.4
5.1-5.4
5.5
6
8
17
5.1
5.1
5.2
5.2
5.3
11
12
13
5.3
2
3
4
5
6,8,9
10
11
12-14
15
7
19,20
8.8-8.10
5.6-5.8
18
10
19-22
11,12
18
7.1
7.1
9,10
3.1
2.1
2.2
2.3,2.5,2.6
3.2
3.3,3.9
3.4-3.11,4
2.4
3.18-3.20,8
7.4,7.5
3.12,3.13
4.1
1.1-1.6
4.2-4.6
1.7-1.12
1.13-1.17
1.18-1.20,4