Advanced Microeconomics

M.Sc Economics Core Module

Dr. JB Nnyanzi
Module Outline

Chapter 1
Consumer Behaviour
Extends the student's undergraduate understanding of
the theory of consumer choice to the Masters level. The
course should cover
1.1 The theory of consumer behaviour: choices and
preferences, utility, demand functions and their
properties.
1.2 Indirect utility functions and expenditure functions.
Duality. Implications for interpreting welfare implications
of changes in price and money income indices.
1.3 Separability and market demand: specification of
demand functions in applied work.

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Chapter 2
The Standard Theory of the Firm
The Standard Theory of the Firm
Extends the students undergraduate knowledge
of the standard theory of profit maximization by
the firm. Topics covered:
2.1 Specifications of technology in isoquants:
returns to scale, homotheticity, monotonicity,
convexity, elasticity of substitution.
2.2 The profit function.
2.3 Conditional factor demands and cost
functions.
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The Standard Theory of the Firm

(contd)
2.4 Relationship between profit and cost
functions and technology sets.
2.5 Cost functions and the long and short
runs.
2.6 Specification of alternative production
functions for estimation purposes.

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Chapter 3
Inter-temporal Choice
Introduces the student to optimization over
time and the problem of choosing
appropriate discount rates in applied work.

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Chapter 4
Uncertainty and Risk
4.1The distinction between Risk and
Uncertainty.
4.2 Expected Utility Theory.
4.3 Risk Aversion and measurement

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Chapter 5
Game Theory
5.1 Non-Cooperative versus Cooperative
Games. The course should concentrate on
Non-Cooperative games but students
should know the difference between the
two approaches.
5.2 Information: Perfect, Imperfect,
Symmetric, Asymmetric, Complete and
Incomplete.
5.3 Pure and Mixed Strategies.
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Game Theory
(contd)
5.4 Equilibrium Concepts: Dominant Strategies,
Nash and Refinements of Nash.
5.5 Common Games: Coordination Games,
Games of Coordination With Conflict (Chicken),
Games of Free-Riding (Prisoner's Dilemma).
5.6 Repeated Games: Backward Induction and
Sub-Game Perfection.
5.7 The Folk Theorem for Repeated Games and
its Implications.
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Chapter 6
Market Structure: Perfect
Competition, Monopoly and
Oligopoly
Oligopoly and the application of game
theory approaches to traditional oligopoly
problems.

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Chapter 7
General Equilibrium and Welfare
Economics
It is still essential that students understand

how the basic market clearing has been
modelled,

the strict assumptions required to generate
the general equilibrium and

how the two welfare theorems follow.
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Chapter 8
Market Failure
In developing countries the policy
discussion requires students to be better
trained in understanding
the types of market failures,
their analytical limitations and
the policy implications.

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Market Failure
(contd)
8.1 Natural monopolies, Indivisibilities and
Increasing Returns, Externalities, Public
Goods, Transaction Costs and Information
Failures.
8.2 The theory of the second-best
8.2 The Analysis of Property Rights.

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Chapter 9
Asymmetric Information
The longest section in the course in terms
of hours of teaching reflects its
significance in modern microeconomics
and its applications. The topic list is not
extensive but the time to be spent on each
topic here is greater than in other sections
given the complexity of many of the issues
as well as the fact that for many students
this will be a very new way of thinking
about microeconomic problems.
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Asymmetric Information
(contd)
9.1 Adverse Selection and Moral Hazard.
9.2 Applications to Peasant Households,
Sharecropping, Credit Markets, Labour
Markets.
9.3 Alternative Views of Market Structure
and Competition.

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Chapter 10
Alternative Theories of the Firm
10.1 Transaction Cost Models of the Firm
10.2 Asymmetric Information (PrincipalAgent) Models of the Firm

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Chapter 11
Rent-Seeking and Corruption
The analysis of rent-seeking involves quite
a lot of pure theory as well.
Clearly an area of policy relevance to
developing countries.
The analysis of rents is also a significant
part of the re-assessment of the relevance
of the general equilibrium model.

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