Degree in Philosophy, Politics and Economics School Year 2014/15

**Microeconomics (22928)**

*Year*: 1st

*Term*: 2nd

*ECTS credits*: 6

*Professor*: Alexis León, Dept. of Economics and Business, UPF, 20.299bis

*Language of instruction:* English

*Office hours*: Tue. 4:30-6 p.m., or by appointment ([email protected]).

*Lectures*: Thurs. 9-11 a.m., in room 40.213.

Mon. 04/20 11 a.m.-1 p.m.: make-up lecture, in room 40.244.

*Seminar sessions*: Mon. 03/09, 04/13 and 05/11, 11 a.m.-1 p.m., in room 20.237 (101).

Tue. 03/10, 04/14 and 05/12, 11 a.m.-1 p.m., in room 20.237 (102).

**1. ****Course Description**

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The aim of this course is to present the fundamental tools and methods used in modern economic analysis. It covers the basic economic models on consumer theory, producer theory, partial equilibrium (with and without perfect competition), competitive general equilibrium, and an introduction to welfare economics and market failures.

Because of its placement as the first economics course in the program, it constitutes the earliest opportunity for students to become familiar with the basic toolkit of a micro economist. This makes the course both valuable -as a stepping stone toward more advanced economic courses- and challenging. Learning how to formalize the analysis of economic phenomena through the construction of a model and the interpretation of its results is a process comparable to that of studying a new language -it requires repeated practice. Just as it is impossible to write (or even read) an essay without knowledge of the alphabet or grammar, one cannot carry out (or comprehend) economic analysis without having acquired a good command of its basic elements.

**2. ****Prerequisites**

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In order to succeed in this course, students must have some basic mathematical skills (particularly algebra, calculus, and optimization). These are covered in the first-semester course Mathematics (22924).

**3. ****Educational Objectives and Core Competencies**

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*General skills*:

- Ability to analyze, synthesize and interpret information.

- Ability to apply theoretical knowledge in different contexts.

- Capacity for independent thought and new idea creation.

- Capacity for independent learning and autonomous work.

- Ability to speak in public and communicate clearly (in particular, how to formally model and solve problems), through class participation.

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*Specific skills*:

- Ability to develop and solve simple microeconomic models formally.

- Ability to identify determinants of consumer demand and firm supply decisions.

- Ability to understand the concept of economic efficiency and to characterize a market equilibrium, or the result of a market intervention, as efficient or inefficient.

- Ability to use knowledge of elasticities (of demand and supply) to assess the effects of a tax or other public policy.

- Ability to apply a basic mathematical framework to analyze economic phenomena.

**4. ****Content Outline**

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Topics marked with an asterisk (*) will be covered if time permits:

Topic 1. Consumer Theory

1.1. Budget Constraints, Taxes and Subsidies

1.2. Preferences, Indifference Curves and Utility Functions

1.3. Optimal Choice and Consumer Demand

1.4. Variations in Income and Variations in Prices: Types of Goods

1.5. Aggregate Demand (or Market Demand)

Topic 2. Producer Theory

2.1. Technology and Production Factors

2.2. Profit Maximization and Cost Minimization (Short Run and Log Run)

2.3. Factor Demands

2.4. Cost Curves and Firm Supply

2.5. Industry Supply (or Market Supply)

Topic 3. Partial Equilibrium and Market Structure

3.1. Equilibrium in a Competitive Market: Consumers' and Producers' Surplus, and Efficiency

3.2. Tax Incidence, Tax Revenue, and Efficiency Loss (or Deadweight Loss)

3.3. Monopoly: Causes, Profit Maximization, Inefficiency and Regulation

3.4. Price Discrimination (*)

3.5. Oligopoly and Notions of Oligopolistic Equilibrium

Topic 4. The Labor Market

4.1. Labor Supply. Consequences and Design of Government Transfer Programs

4.2. Labor Demand, Monopsony and the Minimum Wage (*)

Topic 5. Market Failures (*)

5.1. Public Goods (*)

**5. ****Instructional Methods and Grading Criteria**

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Course topics will be introduced in the **lectures**. These will cover the main concepts and models, as well as some numerical examples and exercises. Some of these will appear in **problem sets** that will be posted online (on Aula Global) throughout the semester. Problem sets are designed to help students practice applying the concepts and models developed in the lectures. Students are strongly encouraged to work on solving these problems independently -even if they discuss them with classmates in study groups. From each set, one or several problems (to be announced) will be due in class. Assignments in English are preferred, but Catalan and Spanish are also acceptable. These assignments may be graded and taken into account in determining the final course grade in marginal cases.

**Seminar sessions** will consist of two parts. Firstly, a discussion of exercises from the problem sets, in which students are expected to contribute proposed solutions. In the second part, the students will be given a brief quiz.

The final **course grade** will be determined as follows:

*Continuous Evaluation *(compulsory) comprises three midterm quizzes.

- 1st midterm quiz (first seminar session): 15% of the final course grade.

- 2nd midterm quiz (second seminar session): 15% of the final course grade.

- 3rd midterm quiz (third seminar session): 15% of the final course grade.

All three **midterm quizzes **will be multiple choice tests (with a single valid answer to be chosen from among the options given) with questions similar to those in the problem sets and the examples seen in class. All tests in this course are closed-book, closed-notes, with no calculators or other aids (electronic or otherwise) permitted.

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*Final Examination* (compulsory): 55% of the final course grade.

The **final exam** is comprehensive; it will cover all the material in the course. It will also follow the same format (multiple-choice) and rules (no aids allowed) as the midterm tests. It will be given on Thursday 06/04, at 3 p.m., in room 40.146.

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To pass the course, students must achieve a final course grade of 5 (out of 10) or higher. In addition, they must have obtained a final exam score of 4 (out of 10) or higher; otherwise, the final course grade will be either 4 or the weighted average described above, whichever is lower, and a 'Fail' will be awarded.

No out-of-schedule tests will be given. Only in case of absence due to serious illness or grave family matter, properly documented, may a missed midterm test score be substituted with the average of the other two --that is, the weight of the other two quiz scores in the computation of the final course grade would increase by 50% each. Midterm test scores cannot substitute for a final exam absence.

Students who earn a 'Fail' grade after having attended and participated in course activities and examinations throughout the semester may take a **remedial exam** ("recuperació") to make up their grade. This exam will be given on Thursday 06/25, at 3 p.m., in room 20.017. A student who misses the final exam cannot take the remedial exam. This exam will follow a similar format as the final exam and will cover the whole semester. The score on this test will become the new final course grade.

In the event of failing the course after taking the remedial test, no component of the final course grade will be saved for next year.

**6. ****Learning Resources**

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The basic reference, and recommended textbook for this course, is:

Varian, H., *Intermediate Microeconomics: A Modern Approach*, 8th ed., W. W. Norton & Co. (2010). Translation into Spanish available from Ed. Antoni Bosch (2011).

The following textbooks may prove helpful as additional, complementary references:

Begg, D., Fischer, S. and Dornbusch, R., *Economics*, 9th ed., McGraw-Hill (2008).

Morgan, W., Katz, M., and Rosen, H., *Microeconomics*, McGraw-Hill (2009).

Silvestre, J., *Microeconomia*, Editorial UOC (2006). In Catalan.

Additional course materials will be provided throughout the term via Aula Global. These resources, which include the problem sets, are required reading.