Economic Theory II

Topic 1. Monopoly

We investigate the conditions under which a monopoly arises and its behaviour in the market.

1.1 Profit maximization

1.2 Inefficiency of monopoly

1.3 Natural monopoly and regulation

Topic 2. Monopoly Behaviour

We introduce the concept of price discrimination vs. uniform pricing and show the advantages that a monopolist has in price discriminating across customers.

2.1 Price discrimination: definition

2.2 1st degree PD, and efficiency result

2.3 2nd degree PD

2.4 3rd degree PD

2.5 Two-part tariffs

2.6 Monopolistic competition and product differentiation      

2.7 The location model

Topic 3. Factor Markets

We study the effects that departures from perfect competition on factor markets have on the conduct of the monopolist.

3.1 A market with a single buyer: monopsony

3.2 Upstream and downstream monopolies

Topic 4. Oligopoly

We ask what happens if instead of having only one large firm monopolizing the market we have two or more firms.

4.1 A model of leader-follower: Stackelberg

4.2 Simultaneous price setting: Bertrand

4.3 Simultaneous quantity setting: Cournot

4.4 Collusion

Topic 5. General Equilibrium (I)

We look at linkages across markets for different goods and at the welfare properties that characterize the trading process.

5.1 Exchange and the Edgeworth Box

5.2 Walras' law

5.3 The First Welfare Theorem, or how efficient is a competitive equilibrium?

5.4 The Second Welfare Theorem, or how do we reach an efficient allocation of resources?

Topic 6. General Equilibrium (II)

We see how the exchange economy studied in the previous chapter behaves once production is introduced.

6.1 Exchange and Production

6.2 The production possibilities frontier

6.3 The two fundamental theorems of welfare economics revisited

Topic 7. Welfare

Here we go beyond the notion of Pareto efficiency of the allocation and employment of resources and study the important issue of distribution of resources and welfare across different individuals. A main focus of the chapter is the notion of a social welfare function.

7.1 Aggregation of preferences

7.2 Social welfare functions

7.3 Envy, equity and fairness

7.4 Arrow's impossibility theorem

Topic 8. Externalities

We look at situations where consumption and/or production decisions made by some agents directly enter the utility or production function of other agents and see how this impacts the resulting market equilibrium.

8.1 Externalities and efficiency

8.2 Government intervention

8.3 Pollution vouchers, global warming and "The tragedy of the Commons"

Topic 9. Public Goods

We study goods, which constitute a particular type of externality: they are basically provided in the same amount to all consumers.

9.1 Public goods and efficiency

9.2 Government intervention


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VARIAN, H. R. Microeconomía intermedia. Barcelona: Antoni Bosch, 1994.

BERGSTROM, T.; VARIAN, H. R. Workouts in Intermediate Microeconomics. New York: W.W. Norton & Company, 1999, 2002.

BERGSTROM, T.; VARIAN, H. R. Ejercicios de microeconomía intermedia. Barcelona: Antoni Bosch, 1993.