Intermediate Microeconomics

Units

1. 1

   Preferences and utility

   3 lessons

   1. Preference relations and their axiomsCompare bundles using weak preference, strict preference, and indifference; test completeness, transitivity, strict monotonicity, and convexity.
   2. Utility functions and ordinal utilityCompare bundles with utility scores, identify score transformations that preserve preferences, and draw indifference curves for three utility functions.
   3. Marginal utility and the MRSFind marginal utilities and the MRS from a utility function, interpret the MRS as a local trade-off, and explain diminishing MRS for Cobb–Douglas preferences.
2. 2

   Budget constraints and optimal choice

   4 lessons

   1. The budget setWrite the budget constraint p₁x₁ + p₂x₂ = m, read its intercepts and slope −p₁/p₂ off a graph, and show how income, prices, taxes, subsidies, rationing and the choice of numeraire change the set of affordable bundles.
   2. Optimal choice and the tangency conditionFind the consumer's best affordable bundle by putting indifference curves on the budget line: at an interior optimum MRS = p₁/p₂, and for perfect substitutes and perfect complements the optimum is a corner or a kink.
   3. Constrained optimization with the LagrangianSolve the consumer's problem max u(x₁, x₂) subject to p₁x₁ + p₂x₂ = m with the Lagrangian, read the multiplier λ as the marginal utility of income, and derive the Cobb-Douglas demands x₁ = a m / p₁ and x₂ = (1 − a) m / p₂.
   4. Indirect utility and expenditure functionsDefine the indirect utility function v(p, m) and the expenditure function e(p, u) as dual problems, derive Roy's identity and Shephard's lemma for Cobb-Douglas, and tell Marshallian demand from Hicksian demand.
3. 3

   Demand and the Slutsky equation

   4 lessons

   1. Income and price changesTrace how the chosen bundle moves when income or a price changes, using the income offer curve, the Engel curve and the demand curve, and classify goods as normal, inferior, ordinary or Giffen using elasticities.
   2. The Slutsky equationSplit the effect of a price change into a Slutsky substitution effect and an income effect, state the Slutsky equation ∂x₁/∂p₁ = ∂x₁ˢ/∂p₁ − x₁ ∂x₁/∂m, and use its signs to explain normal, inferior and Giffen goods; contrast Slutsky with Hicks compensation.
   3. Revealed preferenceState the weak and strong axioms of revealed preference, use cost comparisons and budget-line pictures to test observed choices for consistency, and connect the test to Laspeyres and Paasche quantity indexes.
   4. Consumer surplus, CV and EVMeasures welfare change with consumer surplus, compensating variation and equivalent variation, and explains when they coincide under quasilinear utility.
4. 4

   Labor supply and intertemporal choice

   3 lessons

   1. The labor-leisure choiceModels labor supply as choosing leisure with endowment income, deriving the backward-bending labor supply curve from the Slutsky equation with endowment income effects.
   2. Intertemporal budget constraintBuilds the two-period budget constraint c1 + c2/(1+r) = m1 + m2/(1+r), borrowers and lenders, and how interest rate changes affect saving.
   3. Present value and asset marketsApplies present value to bonds and perpetuities, the no-arbitrage condition equating asset returns, and the Hotelling rule for exhaustible resources.
5. 5

   Choice under uncertainty

   3 lessons

   1. Expected utility theoryIntroduces lotteries, contingent consumption, the von Neumann-Morgenstern expected utility function, and the Allais paradox as a challenge.
   2. Risk aversion and certainty equivalentsLinks concave utility to risk aversion, computes certainty equivalents and risk premiums, and the Arrow-Pratt measure of absolute risk aversion.
   3. Insurance and diversificationShows a risk-averse agent fully insures at actuarially fair premiums, and how diversification and risk spreading reduce risk, with mean-variance portfolio choice.
6. 6

   Technology, production and cost

   4 lessons

   1. Production functions and returns to scaleDescribes production functions, isoquants, the marginal product and technical rate of substitution, and constant, increasing and decreasing returns to scale with Cobb-Douglas examples.
   2. Profit maximizationSolves short-run and long-run profit maximization with conditions p MP = w, derives factor demand functions, and introduces Hotelling's lemma.
   3. Cost minimizationMinimizes cost subject to an output target with a Lagrangian, the condition TRS = w1/w2, conditional factor demands, and the cost function for Cobb-Douglas technology.
   4. Cost curvesDerives average, marginal and fixed cost from the cost function, short-run versus long-run cost, and the envelope relationship between them.
7. 7

   Competitive markets

   3 lessons

   1. Firm and industry supplyDerives the competitive firm's supply curve as MC above minimum AVC, aggregates to industry supply, and analyzes long-run equilibrium with free entry and zero profit.
   2. Equilibrium and policy analysisSolves for competitive equilibrium with demand and supply functions, analyzes tax incidence with elasticities, and computes deadweight loss using Harberger triangles.
   3. Pareto efficiency of competitive marketsDefines Pareto efficiency, and shows competitive equilibrium maximizes total surplus where marginal willingness to pay equals marginal cost.
8. 8

   General equilibrium and welfare

   4 lessons

   1. Exchange and the Edgeworth boxUses the Edgeworth box for two consumers and two goods to show endowments, the contract curve, Pareto improvements and the core of an exchange economy.
   2. Walrasian equilibriumDefines Walrasian (competitive) equilibrium with excess demand functions, Walras's law, relative prices, and solves a two-person Cobb-Douglas exchange economy.
   3. The fundamental welfare theoremsStates and illustrates the first welfare theorem (competitive equilibria are Pareto efficient) and the second (any efficient allocation is attainable with transfers under convexity).
   4. Production and social welfareExtends general equilibrium to production with the production possibilities frontier, then introduces social welfare functions and Arrow's impossibility theorem.
9. 9

   Monopoly and pricing

   3 lessons

   1. Monopoly profit maximization and markupSolves MR = MC with calculus, derives the markup rule p = MC / (1 - 1/|e|) and the Lerner index, and computes monopoly deadweight loss.
   2. First, second and third degree price discriminationAnalyzes perfect price discrimination, second-degree discrimination via quantity discounts and menus, and third-degree discrimination setting MR equal across markets by elasticity.
   3. Two-part tariffs and bundlingShows how a two-part tariff extracts consumer surplus with a fee and price at marginal cost, and why bundling can raise profit with negatively correlated valuations.
10. 10

    Game theory and oligopoly

    5 lessons

    1. Normal form games and Nash equilibriumDefines strategies, payoff matrices, dominant strategies, pure strategy Nash equilibrium and mixed strategy equilibrium, using the prisoners' dilemma and matching pennies.
    2. Sequential games and backward inductionRepresents games in extensive form, solves by backward induction for subgame perfect equilibrium, and discusses commitment and entry deterrence.
    3. The Cournot modelDerives reaction functions for quantity-setting duopolists with linear demand, solves the Cournot-Nash equilibrium, and compares output and price with monopoly and competition.
    4. Bertrand and Stackelberg modelsShows Bertrand price competition yields price equal to marginal cost, and solves the Stackelberg leader-follower model, with first-mover advantage, compared with Cournot.
    5. Repeated games and collusionExplains how infinitely repeated games sustain collusion with trigger strategies when the discount factor is high enough, and the folk theorem.
11. 11

    Asymmetric information and externalities

    4 lessons

    1. Adverse selectionPresents Akerlof's market for lemons, showing how hidden quality unravels markets, with insurance and the role of mandates.
    2. Moral hazard and the principal-agent problemModels hidden action with incentive compatibility and participation constraints, and incentive contracts like rent, wage and sharecropping.
    3. Signaling and screeningExplains Spence's job market signaling model with education as a costly signal, separating and pooling equilibria, and screening by self-selection.
    4. Externalities and public goodsDerives efficient provision with external costs, Pigouvian taxes, the Coase theorem, and the Samuelson condition that summed MRS equals MC for public goods.