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Microeconomics 2

Academic Year
Instruction in English
ECTS credits
Course type:
Compulsory course
3 year, 1-4 module


Богородицкая Нина Владимировна

Course Syllabus


Microeconomics-2 is a two-semester course for third year students divided into two parts. The first part covers all topics of the syllabus and the second part is devoted to supporting lectures. In the course of Microeconomics-2 students are expected to deepen their understanding of basic concepts, add further tools of analysis and develop their skills in applying theory to economic problems. The course pays special attention to problems of uncertainty, intertemporal choice, general equilibrium and efficiency, asymmetric information and public goods. Intermediate Microeconomics is a core discipline under world standards. It forms the basis of further economic studies in applied disciplines such as: industrial organisation, public sector economics, labour economics, international economics, corporate finance, development economics, etc. The course is taught in English. The students are also studying for Russian degree in Economics, and knowing Russian terminology through reading in Russian is also required. Course prerequisites Students are supposed to be competent in basic economic analysis up to the level of the Introductory Microeconomics and in calculus taught in the first year of studies. Students are also expected to be familiar with constrained optimisation studied in the course of Mathematics for Economists during the second year. The course itself provides a basis (and so serves as a prerequisite) for such courses as Industrial Economics, Labour Economics, Public Sector Economics, International Economics.
Learning Objectives

Learning Objectives

  •  to expand the students’ knowledge in the field of microeconomics and to make them ready to analyze real economic situations
  •  to provide students with the knowledge of basic microeconomic models' assumptions, internal logic and predictions, grounding the explanations on intuitive, graphical and analytical approaches;
  •  to develop the students' ability to apply the knowledge acquired to the analysis of specific economic cases, recognising the proper framework of analysis and constructing the adequate economic models within this framework;
Expected Learning Outcomes

Expected Learning Outcomes

  • Students should be able to apply the knowledge acquired to the analysis of specific economic cases, recognising the proper framework of analysis and constructing the adequate economic models within this framework, grounding the explanations on intuitive, graphical and analytical approaches; be capable to work in a team
Course Contents

Course Contents

  • Consumer behaviour under fixed income.
    Assumptions underlying indifference curves. Budget constraints (including cases of kinked budget constraints). Optimal choice (interior and corner solutions). Utility maximisation and expenditure minimisation problems: duality in consumption. Marshallian and Hicksian (compensated) demand functions. Slutsky equation. Revealed preferences. Slutsky substitution effect. Measuring changes in consumer’s welfare. Compensating variation, equivalent variation and consumer surplus: definitions and graphical representation.
  • Consumer behaviour under in-kind income
    Model with in-kind income. Slutsky equation for the case of in-kind income. Application 1. The individual’s supply of labour. Application 2. Intertemporal choice. Saving and borrowing. Present value concept.
  • Choice under uncertainty
    Expected utility model (von Neumann-Morgenstern expected utility function). Attitude to risk and shape of the Bernoully utility function. Certainty equivalent and risk premium. Arrow-Pratt measure of risk aversion. Contingent commodities model. Applications: diversification, insurance, risk pooling, value of information.
  • Game theory
    Simultaneous-move or normal-form games. Dominant and dominated strategies, iterated elimination of strictly dominated strategies. Nash equilibrium in pure and mixed strategies. Sequential-move or extensive-form games. Actions and strategies. Finding Nash equilibria using the normal form. Imperfect information: information sets. Noncredible threats in Nash equilibria and subgame perfection. Subgame perfection under imperfect information. Repeated games. Cooperation through trigger strategies. Folk theorem.
  • Production, costs and profit maximization (covered in year 2)
    Cost minimization and cost curves. Profit-maximization and supply curve. Factor demand in the SR. Factor demand in the LR.
  • Perfect competition in a single market (covered in year 2)
    Industry supply and SR equilibrium. Equilibrium in the LR. Efficiency analysis. The effects of government policies.
  • General Equilibrium and Welfare
    Equilbrium in an exchange economy. Existance. Uniqueness. Welfare theorems. General equilibrium in an economy with production.
  • Monopoly and price discrimination
    Inefficiency of pure monopoly. Natural monopoly. Regulation. Perfect price discrimination, market separation. Multi-part pricing. Second-degree price discrimination.
  • Oligopoly
    Cournot model with N firms. Stackelberg leadership. Bertrand competition. Tacit collusion in infinitely repeated game. Bertrand competition with product differentiation. Sequential pricing in a game with differentiated products.
  • Asymmetric Information
    Different types of asymmetric information problems. Asymmetric information: adverse selection. Akerlof's (1970) model of the market for lemons with two qualities. A model of monopolistoic screening. Spence's (1973) model of job market signaling: separating and pooling equilibria. Moral hazard. Effort choice and incentive contracts under risk-averse agent: a formal model. Optimal contract under observable effort. Optimal contract under unobservable effort. The case of risk-neutral agent.
  • Externalities and Public Goods
    Externalities: tax and quota policies. Quota implementation via cap-and-trade systems. Coase theorem: the property rights solution. Public goods. Efficiency condition in presence of public goods (Samuelson equation). Private provision of publicgood under voluntary contributions. The commons problem. A simple model of resource extraction. Over-exploitation of open-access resources and policy responces.
Assessment Elements

Assessment Elements

  • non-blocking Home assignments
  • non-blocking midterm exam
  • non-blocking Winter exam
  • non-blocking Group project
  • blocking Mock exam
    A passing final grade can be assigned only provided that the student attempted the corresponding interim assessment (Spring Mock exam), even when the final grade on the 100-point scale, before the interim assessment, is sufficient to obtain a passing grade on the 10-point scale. Those students who are unable to sit the Spring Mock exam due to illness will have an opportunity to write a makeup test if the legel medical document is provided. If the final exam (UoL exam/Internal exam) is organized as an online exam then a passing final grade can be assigned only provided that the student mark for Spring Mock exam is not less than 15.
  • blocking Final exam (UoL or HSE)
Interim Assessment

Interim Assessment

  • Interim assessment (2 module)
    0.15 * Home assignments + 0.25 * midterm exam + 0.6 * Winter exam
  • Interim assessment (4 module)
    0.4 * Final exam (UoL or HSE) + 0.05 * Group project + 0.35 * Interim assessment (2 module) + 0.2 * Mock exam


Recommended Core Bibliography

  • Theory and application of intermediate microeconomics, Nicholson, W., Snyder, C., 2010
  • Микроэкономика. Принципы и анализ : учебник, Коуэлл, Ф., Демидовой, А. В., 2011

Recommended Additional Bibliography

  • Akerlof, G. A. (1970). The Market for “Lemons”: Quality Uncertainty and the Market Mechanism. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.CAA2734F
  • R. H. Coase. (2013). The Problem of Social Cost. Journal of Law and Economics, (4), 837. https://doi.org/10.1086/674872
  • Schmalensee, R., & Stavins, R. N. (2013). The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment. Journal of Economic Perspectives, 27(1), 103–122. https://doi.org/10.1257/jep.27.1.103
  • Spence, M. (1973). Job Market Signaling. https://doi.org/10.2307/1882010
  • Stavins, R. N. (2011). The Problem of the Commons: Still Unsettled after 100 Years. American Economic Review, 101(1), 81–108. https://doi.org/10.1257/aer.101.1.81