Centre for Financial & Management Studies (CeFiMS) - University of London

Individual Professional Courses – IPC  

Microeconomic Theory & Applications [EP101]

Introduction

Microeconomic Theory and Applications is designed to be the first course of the programme and is intended to provide a solid grounding in microeconomic theory — a body of knowledge which focuses on the behaviour of individual units in a market economy.

Aims & Objectives

The course is about the economic principles underlying the theories of market demand and supply. It develops models to explain economic behaviour of consumers and producers and the ways in which they interact in a market economy.

By the end of the course, students will have covered the four main topics needed to understand the basis of microeconomic theory:

• the basic concepts of the market, demand, supply and equilibrium;
• the principles underlying consumer demand;
• the principles underpinning the theory of the firm;
• the concept of market structures, especially competitive and monopolistic markets.

Resources

Students receive a looseleaf binder containing eight ‘course units’; these texts are carefully structured to provide the main teaching and are equivalent to traditional course lectures, defining and exploring the main concepts and issues, locating these within current economics debate and introducing and linking the further assigned readings. Three assignments (of which two are counted towards the final course grade) marked by your CeFiMS tutors, and a specimen examination paper are also included within the student pack, along with the following:

Textbooks:

Wheatsheaf, New York, ISBN745014666. Andrew Northedge, The Good Study Guide, First Published 1990, Open University, ISBN749200448.

JK Galbraith and Nicole Salinger, Almost Everyone's Guide to Economics, First Published 1978, Penguin, ISBN140135332.

Robert S. Pindyck and Daniel L. Rubinfeld, Microeconomics, Fifth Edition, 2001 , Pearson Education, ISBN130304727.

Saul Estrin and David Laidler, Introduction to Microeconomics, Fourth Edition, 1995, Harvester Wheatsheaf, New York, ISBN745014666.

Readings:

A compilation of further readings: recently published articles or seminal writings which augment and illustrate the main text.

Video Cassette:

The video lecture is intended to review and reinforce the teaching in the course by discussing the same issues through a different medium.

Course Timetable:

This shows the linkage between the various components of the course and indicates the schedule for reading the texts, watching the revision video, submitting assignments, etc.

Course Content

Unit 1 Introduction

The first unit introduces the theories and applications of microeconomics. It teaches the basic concepts, such as the market, equilibrium and supply and demand, and explains both how the demand-supply framework is used for analysing economic problems and its application for policy purposes.

Unit 2 Consumer Theory

This unit deals with the way in which consumers make choices about which goods and services they buy. It explains the principles underlying consumer choice; that is, how consumers are influenced by their preferences and tastes, and by their level of income and market prices. Indifference curve analysis is used to derive and explain demand curves. Unit 2 concludes by examining some applications of consumer theory.

Unit 3 Theory of Production and Costs

The supply side of the economy and the theory of production and costs are introduced. An explanation is given of how firms make decisions about what quantities to produce based on the technical relationships of production between inputs and output. The economic relations of production are then examined — that is, how the costs of inputs enter into the firm’s production decisions.

Unit 4 Profit Maximisation and Competitive Supply

This unit explores how firms make decisions about the amount of output to produce and how their supply of goods relates to the demand for these goods in the market place. Firstly, it examines what happens to output when firms choose to behave so that they maximise profits. Then it focuses on how firms supply goods in competitive market conditions.

Unit 5 Non-Competitive Market Structures

Unit 5 examines firms’ behaviour when markets are non-competitive and firms have some degree of market power which enables them to influence market prices. This is followed by a consideration of how firms with monopoly power make decisions about what price level to charge as well as what level of output to produce. There are other ways in which firms can obtain some degree of market power, by product differentiation or by acting together in cartels, for example, and the pricing and output decisions in such circumstances will also be investigated.

Unit 6 Input Markets

This unit is about the market for inputs and how the supply and demand for inputs is determined under conditions of both perfect and imperfect competition. It explains how the firm’s demand for inputs is derived and its interrelationship with the firm’s output decisions. It considers how the input supply curve of the firm and the industry are determined. The unit also focuses on the demand and supply for labour under different market conditions, and in doing so it considers labour issues such as the role of trade unions and wage discrimination.

Unit 7 General Equilibrium, Efficiency and Pareto Optimality

This part of the course introduces general equilibrium analysis — the interaction of markets and how equilibrium can be achieved in all markets concurrently. Firstly it considers how market exchange takes place between consumers; it then introduces production and, finally, consumption and production are examined together. In its analysis, this unit also considers the notion of economic efficiency — that is, whether a particular allocation of resources is better or worse than another.

Unit 8 Externalities, Public Goods and Asymmetric Information

The final unit covers market failures. It discusses what happens when the market mechanism fails to result in an efficient allocation of resources. It analyses three types of market failures: externalities; public goods; and asymmetric market information. It also examines what policy options are available to achieve an improved allocation of resources in a situation of market failure. Finally, the unit invites students to apply the theoretical concepts to analyse a case study, The Economics of Malaria Control.

Tuition & Assessment

Microeconomic Theory and Applications is assessed by three assignments, the two best of which are counted towards the final grade, and by a three-hour examination held in the autumn. Each assignment consists of compulsory questions or an essay topic, which should be answered, in total, in no more than 2500 words. Assignments count for 30% of the overall grade for this course, while the examination is worth 70% of the final assessment.