Economics 771 – First Semester 2017
M ICROECONOMIC A NALYSIS
Course Description:
The course introduces the standard formal framework for the analysis of decision
making by individual economic agents, in competitive, cooperative and noncooperative/strategic environments. This framework forms the basic building blocks
or starting point of much of modern economic theory and empirical analysis.
The main focus is theoretical model building and analysis, with some reference to and
exploration of related empirical issues. The overarching focus of the course is the
methodology and assumptions that lead to the familiar results. It is not what we find
that is most essential to grasp but how and why we get to the findings.
Course Design:
The course is presented in three parts:
Part I: Game Theory and Uncertainty – 5 lectures
Presented by
Rulof Burger
Tel: +27-21-808-2328
Rm 511 C.G.W Schumann Building Fax: +27-21-808-4637
office hours by appointment
E-mail: [email protected]
Part II: Consumer Theory – 4 lectures
Part III: Producer Theory – 3 lectures
Presented by
Marisa von Fintel
Rm 503 C.G.W Schumann Building
office hours by appointment
Tel: +27-21-808-2481
Fax: +27-21-808-4637
E-mail: [email protected]
We consider all three parts to be vital in the training of an economist; therefore
satisfactory performance in each part is required in order to pass (see Evaluation)
The lectures make liberal and frequent use of the standard tools of mathematical
optimization which were covered in the mathematics course. Some attention will be
given to many of the mathematical features, but elements like basic calculus results will
be taken as known and mastered by the student.
Students are expected to engage in critical and logical thinking, and to work towards
developing concise and rigorous reasoning and writing skills. The course places great
emphasis on active and extensive practice in problem solving as well as in-class
participation during discussions. All of these elements will be assessed.
Broad Course Objectives:
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To demonstrate how formal approaches can be used to formulate and solve
microeconomic problems analytically.
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To explain the intuition behind some of the more well known theorems in modern
microeconomics.
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To build experience in tracing the consequences of specific assumptions often made in
modelling decision processes, and consequently the reasons, costs and benefits of
certain types of these assumptions.
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To provide students with a foundation to apply game-theoretic analysis, both formally
and intuitively, to strategic situations.
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To demonstrate the importance of competitive and cooperative factors in a variety of
decision problems.
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To help students recognize and assess archetypal strategic situations in complicated
decision making settings.
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To facilitate critical engagement with the material in order to achieve synthesis across
the various topics, and develop skills to apply to understanding most fields in
economics.
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To indicate directions in which different parts of microeconomics have been taken and
what is done at the cutting edge of research.
Lectures:
Lecture notes will be provided on the department’s website (ekon.sun.ac.za) at the
discretion of the lecturer, but practically all mathematical derivations will be done
(exclusively) in class, by hand.
Tutorial Sessions and Problem Sets:
Problem Sets will be assigned during the course and are due at the following tutorial
session.
The purpose of these tutorials will be to review material covered in class, provide guided
practice in solving problems and to discuss the answers to problem sets.
While the problem sets will aid you in learning the techniques you need to master for the
tests and exams, they are not intended primarily as opportunities to practice questions for
exam preparation – this is your own responsibility. The tutorials are to be seen as
extensions of the methods developed in class to more complicated environments to learn
the methodology, not as study aids to memorize the work.
Students are allowed to discuss problem sets with class mates and to work together in
groups. However, the submitted solutions must be completely your own work. The
problem sets are graded to reward effort, so attempting each question and submitting all
the problem sets is the best way to ensure a good tutorial mark.
Tutors:
Chloé van Biljon
E-mail: [email protected]
Theo Klein
E-mail: [email protected]
Evaluation:
Students’ performance on the course will be assessed as follows:
Evaluation
Problem Sets
Mid-Semester Test 1
Mid-Semester Test 2
Course Essay
Final Exam
Date
Due in Tutorial Classes
14 March 2017
2 May 2017
Due on 5 May 2017
May/June 2017
Weights:


The final mark for each part of the course will consist of 20% for tutorials and 80%
for final test/exam mark for that part of the course
The marks for the parts of the course and the Essay are weighted as follows:
Weight in Final Course Mark
Final Mark for Part I
Final Mark for Part II
Final Mark for Part III
Course Essay
35%
25%
20%
20%
Criteria for passing course:
In order to pass the course a student must have:
-
A Final Class Mark of at least 50%
A final calculated mark of at least 40% for each of part of the course
individually.
In accordance with departmental policy, only students who have a calculated final class mark
of at least 40% qualify for a supplementary exam.
Exam Coverage:


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The mid-semester test 1 will cover Part I of the course.
The mid-semester test 2 will cover Part II of the course.
The final exam will cover the entire course, but:
o Students who failed mid-semester test 1 are required to write on Part I in the
exam and can obtain a maximum of 50% for this part of the course. Students
o
o
o
o
who miss mid-semester test 1 due to illness are also required to write Part I in
the exam.
Students who failed mid-semester test 2 are required to write on Part II and
can obtain a maximum of 50% for this part of the course. Students who miss
mid-semester test 2 due to illness are also required to write Part II in the exam.
Students who passed the mid-semester tests may use the exam to attempt to
improve their marks. If you decide to write this exam, your exam mark will
replace your mid-semester exam mark.
The final exam is the LAST opportunity to pass Parts I and II of the course.
Students who wrote mid-tem tests 1 and 2 and achieved the sub-minimum
for both section but miss the exam due to illness, can write the sick test (in
the week directly following the exams) providing they provide a valid
doctor’s certificate. This opportunity will also serve as the supplementary test
for those who wrote the exam but failed to achieve the sub-minimum. This
will be the LAST opportunity to pass Part III of the course.
Course Essay:
Students are expected to write a critical academic essay on a number of topics that will be
provided. Once the essays are released, students must sign up for topics on a first-come-firstserved basis. Where a topic is stated broadly, you may choose the scope and focus of your essay –
just make sure to explicitly state and motivate your choices in this regard.
The technical requirements are:
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Formal citation and referencing according to the Harvard method
12pt font, 1.5 line spacing
A signed plagiarism declaration must accompany the essay
A digital version of the essay must be uploaded to TurnItIn.com before submission
No cover page, abstract, table of contents or binding – save trees and energy: just
staple.
The word limit for this essay is 2000. This maximum will be strictly enforced: word limit penalties
will be applied proportional to the number of words exceeding 2000. Please report your word
count on the title page of your essay. A late submission penalty of 2 percentage points per day
late will be imposed. All essays must be submitted on turnitin.com.
Marks are allocated according to how well students perform in terms of content (50%), writing
style (30%) and bibliography (20%).
Prescribed Textbook:
Jehle, G.A. and Reny, P.J. (2011) Advanced Microeconomic Theory, 3rd Edition,
Financial Times|Prentice Hall, Harlow, England. (referred to as JR below)
Recommended textbooks:
Easier than course level:
Varian, H.R. (2009). Intermediate Microeconomics: A Modern Approach. 8th Edition.
Norton, New York.
On par with course difficulty level:
Varian, H.R. (1992). Microeconomic Analysis, 3rd Edition. Norton, New York.
Gibbons, R. (1992). A Primer in Game Theory. Prentice Hall, Harlow, England.
(referred to as Gibbons below)
More advanced than course level:
Mas-Colell, A., Whinston, M.D. and Green, J.R. (1995). Microeconomic Theory.
Oxford University Press, New York.
Papers:
Several papers will be used as additional content resources and as examples of
current theoretical and empirical work. All assigned readings are examinable.
Brief Lecture Outline:
Part I: Decision making in Strategic Environments – 5 Lectures – Rulof Burger

Risk, Uncertainty, Expected Utility and Insurance (1 lecture)
Readings:
JR Chapter 2: 2.4
Machina, M.J. (1987) "Choice Under Uncertainty: Problems Solved and
Unsolved", Journal of Economic Perspectives 1(1): 121-154.
Dercon, S. (2002) “Income Risk, Coping Strategies, and Safety Nets” World Bank
Research Observer 17(2): 141-166.
Ehrlich, I. and G.S. Becker (1972) “Market Insurance, Self-insurance and Selfprotection” The Journal of Political Economy 80(4): 623-648.
Barberis, N. (2013) “Thirty Years of Prospect Theory in Economics: A Review
and Assessment”, Journal of Economic Perspectives 27(1): 173-196.

Strategic-form games and solution concepts (1 lecture)
Readings:
JR Chapter 7.1-7.2
Gibbons Chapter 1: 1.1, 1.3B
Aumann, R. J. (1985) “What is Game Theory Trying to Accomplish?” in Frontiers
of Economics edited by K. Arrow and S. Honkapohja. Blackwell, Oxford.
Gibbons, R. (1997) “An Introduction to Applicable Game Theory”, Journal of
Economic Perspectives 11(1): 127-149.
Kuhn, Harold W. (1994) “Nobel seminar: the work of John Nash in game theory”
(with contributions by J. F. Nash, J. C. Harsanyi, R. Selten, J. W. Weibull, E.
van Damme, and P. Hammerstein), Les Prix Nobel 1994, 274-310.
Mailath, G.J. (1998) "Do People Play Nash Equilibrium? Lessons from
Evolutionary Game Theory", Journal of Economic Literature 36(3): 1347-1374.

Mixed strategies (1 lecture)
Readings:
JR Chapter 7.2
Gibbons Chapter 1: 1.3
Nash, J. F. (1950) "Equilibrium Points in N-Person Games", Proceedings of the
National Academy of Sciences 36, 48-49.
Palacios-Huerta, I. (2003). "Professionals Play Minimax," Review of Economic Studies,
70(2): 395-415, 04.
Aumann, R. J. (1987). "Correlated Equilibrium as an Expression of Bayesian
Rationality", Econometrica 55 (1): 1-18.
Binmore, K., Swierzbinski, J. & Proulx, C. (2001). "Does Minimax Work? An
Experimental Study", Economic Journal 111(473): 445-464.
Sinervo, B. and C. M. Lively (1996). "The Rock-Paper-Scissors Game and the
Evolution of Alternative Male Strategies", Nature 380: 240–243.

Continuous strategy spaces and extensive form games (1 lecture)
Readings:
JR Chapter 7.2
Gibbons Chapter 1: 1.2
Cournot, A. A. (1897) [1838]. Researches into the Mathematical Principles of the Theory of
Wealth, Hachette, Paris.
Friedman, J. W. (1999). “The Legacy of Augistin Cournot.” UNC Department of
Economics Working Paper 99-05, University of North Carolina, Chapel Hill.
Camerer, C.F. (1997) “Progress in Behavioral Game Theory”, Journal of Economic
Perspectives, 11(4): 167-188.
“Modelling Behaviour: Game Theory in Practice.” The Economist (Technology
Quarterly Q3) 3 September 2011: 15-16.
“Economics evolves: A long way from dismal.” The Economist, 10 January 2015.
“Buttonwood: More Kirk than Spock.” The Economist, 9 May 2015.

Extensive-Form Games (1 lecture)
Readings:
JR Chapter 7.3
Gibbons Chapter 2
Diamond, D.W. and Dybvig, P.H. (1983). “Bank Runs, Deposit Insurance, and
Liquidity” Journal of Political Economy 91 (3): 401-419.
Friedman, J.W., (1971) "A Non-Cooperative Equilibrium for Supergames", Review
of Economic Studies 38 (113): 1-12.
Abreu, D. (1988) "On the Theory of Infinitely Repeated Games with
Discounting", Econometrica 56: 383-396.
Part II: Consumer Theory – 4 Lectures – Marisa von Fintel

Preliminaries, Math, Logic, Preferences and Utility (2 lectures)
Readings:
JR Chapter 1: 1.1 – 1.3,
Mathematical Appendices: A1.1, A1.2.2, A1.4, A2.3 (review these parts)

Consumer Problem in Primal and Dual form, Demand and its characterization
(2 lectures)
Readings:
JR Chapter 1: 1.3 – 1.5, Chapter 2: 2.1, (2.2)
Part III: Producer Theory – 3 Lectures – Marisa von Fintel

Classical Theory of Firm
(2 lectures)
Readings:
JR Chapter 3

Equilibrium and Welfare
(1 lecture)
Readings:
JR Chapter 4
JR Chapter 6.1 – 6.2