Microeconomic Theory
II

ECO 6385

Spring, 2010.

ECO 6385

Spring, 2010.

Instructor: Santanu Roy

Professor of
Economics, SMU.

Office: 301-L, Umphrey Lee
Building, SMU.

Tel: 214 768 2714

Fax: 214 768 1821

E-mail: sroy@smu.edu

Office Hours: Tuesdays & Thursdays, 9.30 - 11.00 AM & by appointment.

Lectures: Mondays & Wednesdays,
9 - 10.20 AM, 303 Umphrey Lee.

Objective:

This is the second course in the core microeconomic theory
sequence for students in the first year of the Ph.D. program in economics. The
aim of the course is to train students in the art of theoretical reasoning and
to expose them to fundamental techniques and concepts in modern microeconomic
theory. In particular, this course will focus on topics related to interactive
behavior, incentives and economic institutions such as game theory, partial
equilibrium analysis, market competition, information economics and an
introduction to general equilibrium.

**Teaching Assistant**:
Jong Min Kim

Office Hours:

E-mail: jongk@smu.edu

Pre-requisite:

ECO 6384.

Textbook:

*Microeconomic Theory* by
Andreu Mas-Colell, Michael D. Whinston and Jerry R.Green, Oxford University
Press, 1995.

*Home Assignments:
*

Home assignments will be given out from time to time. It is expected that students will work on these assignments on their own and turn them in before the due date. Solutions will be discussed in class.

Evaluation:

There will be one midterm and one final exam. Both exams are "in-class" and "closed book".

Final grade will be assigned on the basis of performance in home assignments (20%), midterm exam (40%) and final exam (40%).

No incomplete grades will be assigned except for cases of medical emergency during the final exam.

*List of Topics*:

I. Choice Under Uncertainty: Expected Utility Theory;
Money Lotteries and Risk Aversion; Measures of Risk Aversion; First and Second
Order Stochastic Dominance.

Material: Chapter 6 (6.A - 6.D).

II. Game Theory: Extensive and Normal form representations; Strategies; Mixed
Strategies; Dominant and Dominated strategies; Nash Equilibrium; Incomplete
Information Games: Bayesian-Nash equilibrium; Application to Auctions; Dynamic
Games: Sequential Rationality, Backward Induction and Subgame Perfection;
Application: Bilateral Bargaining; Beliefs and Sequential Rationality: Perfect
Bayesian equilibrium; Sequential Equilibrium.

Material: Chapter 7, Chapter 8 (8.A, 8.B, 8.D, 8.E), Chapter 9 (9.A - 9.C).

III. Competitive Markets: Competitive Equilibrium & Pareto optimality; Partial
Equilibrium Analysis; Welfare analysis; Efficiency of competitive markets;
deadweight loss of taxation; Free entry and long run equilibria.

Material: Chapter 10.

IV. Market Power: Monopoly & welfare loss; Price Discrimination in monopoly,
Two-part tariff; Static oligopoly: Bertrand, Cournot, capacity constraints &
product differentiation; Entry; Repeated interaction and collusion, Infinitely
Repeated Games and Folk Theorem.

Material: Chapter 12 (12.A - 12.E), Appendix A.

V. Adverse Selection, Signaling and Screening: Asymmetric
information and adverse selection, market failure; Signaling: separating and
pooling equilibria; Refinement of beliefs (Intuitive Criterion); Screening
mechanisms.

Material: Chapter 13

VI. The Principal-Agent Problem: Moral hazard and risk
sharing, Hidden Information and screening; Revelation principle.

Material: Chapter 14 (14.A - 14.C).

VII. Public Goods and Externalities. [If time permits]

Material: Chapter 11.

Lecture Notes

PROBLEM SETS