Introductory microeconomics
Prof. A.O. Verenikin, department of political economy,
Faculty of economics, Lomonosov Moscow State University
Course description
Learning objectives
The objective of the course is to make students acquainted with international standards, trends and
concepts in contemporary microeconomics. The course is designed to help the students to get skills,
abilities and content knowledge required to pass the Advanced Placement Test which is carried out
annually worldwide by American College Board.
The purpose of the course is to give students a thorough understanding of the principles of
economics in application to individual decision makers, both consumers and firms. The course
concentrates on the nature and functions of product markets. It includes the study of factor markets and of
the efficiency and failures of competitive markets.
Language of the course
The course is taught in English, but the main ideas and concepts are explained in Russian as well.
Main reading
Begg, D., Fischer, S. and Dornbusch, R. Economics. Eighth edition. McGraw Hill. 2005.
Additional reading
1. Frank, R. and Bernanke B. Principles of Micoreconomics. Third Edition. McGraw Hill, 2007.
2. Frank, R. and Bernanke B. Prepared by J. Mogab and L. Johnston. Study Guide for use with Principles
of Micoreconomics. Third Edition. McGraw Hill, 2007.
3. Мэнкью Н.Г. Принципы микроэкономики. 4-е изд. СПб.: Питер, 2007.
4. Ward, D. and Begg D. Students Workbook for Economics. Seventh Edition. McGraw Hill. 2003.
5. Musgrave F. And Kacapyr, E. AP Microeconomics / Macroeconomics. 3rd ed. Barron’s Educational
Series, 2009.
6. Dodge E.R. 5 steps to a 5. AP Microeconomics / Macroeconomics 2010 – 2011. McGraw-Hill, 2010.
7. Anderson D. Cracking the AP Economics Macro & Micro Exams. Princeton Review, 2010.
8. Нуреев Р.М. Курс микроэкономики. 2 изд. М.: НОРМА-ИНФРА-М, 2008.
9. Сборник задач по микроэкономике к «Курсу микроэкономики» Р.М. Нуреева. М.: НОРМАИНФРА-М, 2008.
10. Экономическая теория. Вводный курс. Микроэкономика / Под ред. И.Е. Рудаковой. М.:
ИНФРА-М, 2010.
11. Рудакова И.Е., Никитина Н.И. Микроэкономика. Программа, планы лекций и семинаров, тесты,
задачи, ситуации. М. Дело и Сервис, 2011.
12. Франк Р. Микроэкономика и поведение. М.: Инфра-М, 2003.
Internet resources
http://www.collegeboard.com
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Course outline
1. Basic economic concepts
Scarcity and choice. Opportunity costs and trade-offs. Marginal analysis. Production possibility frontier.
Absolute and comparative advantage. Specialization and exchange. Economic systems.
2. Supply and demand
Determinants of demand and supply. Market equilibrium. Deficit and surplus. Price and quantity controls.
Stability of market equilibrium. Consumer surplus, producer surplus and market efficiency. Tax incidence
and dead weight loss.
3. Elasticity
Price elasticity of demand. Elasticity of demand and total revenue of the firm. Cross-price elasticity. Price
and income elasticity of demand. Application of elasticity theory: taxation.
4. Consumer choice
Total and marginal utility. Indifference curves. Marginal rate of substitution. Budget constraint. Utility
maximizing conditions. Adjustment to price and income changes: income effect and substitution effect.
Normal and inferior goods. Substitutes and complements. Consumer choice and the law of demand.
Individual and market demand curves.
5. Producer theory: revenues and costs
Production functions: short and long run. Average and marginal product. Diminishing returns.
Opportunity cost and accounting costs. Total, average and marginal costs: short run and long run.
Economies of scale. Productivity and costs. Cost minimizing input combination. Total, average and
marginal revenues. Accounting versus economic profits. Profit maximization.
6. Firm behaviour and market structure: perfect competition
Product markets: characteristics and types. Perfect competition as a market structure. A perfectly
competitive firm and market: profit maximization and supply in the short run. Behaviour of firms and
markets in the long run. Comparative statics for a competitive industry. Efficiency and perfect
competition.
7. Firm behaviour and market structure: monopoly
Monopoly as a market structure. Profit maximization under monopoly. Monopoly power: sources and
measure. Inefficiency of monopoly. Natural monopoly. Antitrust policy and regulation of monopoly.
Price discrimination.
8. Firm behaviour and market structure: monopolistic competition and oligopoly
Monopolistic competition as a market structure. Product differentiation and role of advertising.
Behaviour of firms in a market of monopolistic competition: short-run and long-run. Excess capacity
and inefficiency.
Oligopoly as a market structure. Price wars and collusion. Kinked demand and sticky prices. Game theory:
interdependence and strategic behaviour.
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9. Factor markets
Derived demand for factors of production. Marginal revenue product and marginal factor cost: profit
maximization.
Perfect competition at output and labour markets: marginal value product of labour and a firm’s demand
for labour. The demand curve for labour of a perfectly competitive industry. Supply of labour.
Equilibrium in labour market. Perfect and imperfect competition in labour market. Wage differentials:
discrimination and human capital. Unemployment and regulation in labour market.
Demand and supply of capital. Equilibrium in capital market. Net present value and discounting. Interest
rate.
10. Introduction to welfare economics
Perfect competition and Pareto efficiency. Equity and efficiency. Income distribution. Market failure.
Externalities. Property rights and transaction costs. Public goods. Free-rider problem. Distortions and the
second best. Scope for government intervention.
Revision questions for final test
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Scarcity and choice. Marginal analysis. Opportunity costs and trade-offs. Production possibility frontier.
Comparative advantages. Specialization and exchange
Determinants of demand and supply. Market equilibrium. Deficit and surplus
Consumers’ surplus, producers’ surplus and market efficiency
Price and quantity controls. Tax incidence and dead weight loss
Price elasticity of demand
Elasticity of demand and total revenue of producers
Cross-price elasticity of demand: substitutes and complements. Income elasticity of demand: normal and inferior goods.
Price elasticity of supply
Application of elasticity theory: taxation
Total and marginal utility. Preferences: main assumptions. Indifference curves. Marginal rate of substitution
Budget constraint
Utility maximizing conditions
Adjustment to price and income changes: income effect and substitution effect. Normal and inferior goods. Substitutes
and complements. Consumer choice and the law of demand
Production functions: short and long run. Average and marginal product. Diminishing returns. Economies of scale
Opportunity cost and accounting costs. Total, average and marginal costs: short run and long run. Technology and costs.
Cost minimizing input combination
Total, average and marginal revenue. Accounting versus economic profits. Profit maximization
Product markets: characteristics and types. Perfect competition as a market structure
Perfectly competitive firm and market: profit maximization and supply in short run
Producer’s surplus in short run
Behaviour of firms and markets in long run
Market structure determinants
Profit maximization by a monopoly
Monopoly power. Inefficiency of monopoly
Natural monopoly
Price discrimination
Monopolistic competition as a market structure. Behaviour of firms in a market of monopolistic competition: short-run
and long-run. Excess capacity and inefficiency
Oligopoly as a market structure. Kinked demand and sticky prices. Price wars and collusion
Game theory: interdependence and strategic behaviour
Labour supply
Derived demand for factors of production. Marginal revenue product and marginal factor cost: profit maximization
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31. Perfect competition at output and labour markets: marginal value product of labour and a firm’s demand for labour. The
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demand curve for labour of a perfectly competitive industry. Equilibrium in labour market
Monopoly in product market and perfect competition in labour market
Perfect competition in product market and monopsony in labour market
Imperfect competition both in product and labour market
Demand and supply of capital. Equilibrium in capital market. Net present value and discounting. Interest rate
Wage differentials: discrimination and human capital
Perfect competition and Pareto efficiency. Equity and efficiency. Income distribution. Distortions and the second best
Market failure. Externalities
Property rights and transaction costs
Public goods. Free-rider problem
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