Faculty of Economics and Business

BACHELOR IN ECONOMICS SECOND YEAR Course

Microeconomics II

Code

802350

Module

Economic Analysis

Area

Microeconomics

Nature

Compulsory

Credits

Attendance

3.6

6

Non Attendance

2.4

Year

Second

Semester

3

COORDINATION DEPARTMENT Fundamentos del Análisis Económico I

COORDINATOR AND CONTACT Alberto López Sebastián; [email protected]

SYNOPSIS BRIEF DESCRIPTION The Theory of Consumer Choice.

PRE-REQUISITES Microeconomics I.

OBJECTIVES Introduction to the method of analysis of the Economic Theory. Becoming familiar with the use of models which reflect the behaviour of the economic agents and the forces that fix the prices in the markets.

COMPETENCES General: CG1, CG2 Transversal: CT1, CT3

Faculty of Economics and Business

Specific: CE3, CE6, CE8, CE9

LEARNING METHODOLOGY A mixed methodology of teaching and learning will be used in all educational activities with the aim of encouraging students to develop a collaborative and cooperative attitude in the pursuit of knowledge.

TOPICS COVERED (Syllabus) Chapter 0: Introduction Chapter 1: The budget constraint Market baskets. Budget constraint and budget line. Two goods are often enough. Opportunity cost. The effects of changes in income and prices. The numeraire. Taxes, subsidies and rationing. Chapter 2: Consumer preferences Consumer preferences. Some basic assumptions about preferences: reflexivity, completeness, transitivity, monotony and convexity. Indifference curves. Indifference maps. The shape of indifference curves. The marginal rate of substitution. The utility function as a functional representation of the preferences. Examples: Cobb-Douglas, perfect substitutes, perfect complements, bads, neutrals, satiation, non-convex preferences. Chapter 3: Consumer choice. Demand functions Consumer choice. Marginal utility and consumer choice. Equilibrium and interpretation. Corner solutions. Revealed preference. Individual demand. Examples of demand functions: Cobb-Douglas, perfect substitutes, perfect complements. Example with non-convex preferences. The demand curve. Normal and inferior goods. Ordinary goods and Giffen goods. Substitutes and complements. Engel curves. Price elasticity of demand, cross-price elasticity of demand and income elasticity of demand. Market demand. Adding up linear demand curves. Consumer surplus. Chapter 4: Substitution and income effects The income and substitution effects. The compensating variation in money income in the sense of Slutsky and of Hicks. Graphical analysis. Examples of income and substitution effects: Cobb-Douglas, perfect substitutes and perfect complements. The Slutsky equation. Chapter 5: Buying and selling Net and gross demands. The budget constraint. Changing the endowment. Price changes. Offer curves and demand curves. The Slutsky equation revisited. Use of Slutsky equation. Choice consumption-leisure. The labour supply curve. Comparative statics of labour supply. Examples. Chapter 6: Intertemporal choice The budget constraint. Preferences for consumption. Comparative statics. The Slutsky equation and intertemporal choice. Inflation. Present value: a closer look. Analyzing present value for several periods. Use of present value. Examples. Choice of the interest rate.

TEACHING ACTIVITIES DISTRIBUTION Theoretical lessons

% of Total Credits

35%

Faculty of Economics and Business

Practical lessons

% of Total Credits

10%

% of Total Credits

15%

Resolution of exercises.

Other Activities

This 15% corresponds to personalized & group tutoring and assessment activities. The remaining 40% corresponds to hours for study and time to elaborate the works.

ASSESSMENT Exams

% Share of Final Grade

50%

% Share of Final Grade

40%

Final exam.

Other Activities

Intermediate controls and individual presentation of problems.

% Share of Final Grade

Other Activities

10%

Active participation in the classroom.

EVALUATION CRITERIA The final exam will consist of two parts: one about test questions and other with several problems. A minimum mark in the part corresponding to problems is required (35%). In order to obtain the mark of NO PRESENTADO en February, the student should not participate in the continuous evaluation (both exercises in the classroom and intermediate controls) after the tenth week and should not show up for the final exam. In the “convocatoria extraordinaria”, the student will obtain the mark of NO PRESENTADO if he/she doesn´t show up the final exam in the “convocatoria extraordinaria”. In case the student shows up the final exam, the final mark will be the weighted average of the continuous evaluation and the mark obtained in the exam.

TIMETABLE Week

Contents

1

Chapter 0: Introduction Chapter 1: The budget constraint Market baskets. Budget constraint and budget line. Two goods are often enough. Opportunity cost. The effects of changes in income and prices. The numeraire. Taxes, subsidies and rationing.

2

Exercises of budget constraint. Chapter 2: Consumer preferences Consumer preferences. Some basic assumptions about preferences: reflexivity, completeness, transitivity, monotony and convexity.

Faculty of Economics and Business

3

4

Chapter 2: Consumer preferences Indifference curves. Indifference maps. The shape of indifference curves. The marginal rate of substitution. The utility function as a functional representation of the preferences. Examples: Cobb-Douglas, perfect substitutes, perfect complements, bads, neutrals, satiation, non-convex preferences. Chapter 3: Consumer choice. Demand functions Consumer choice. Marginal utility and consumer choice. Equilibrium and interpretation. Corner solutions. Revealed preference.

5

Exercises First Intermediate Exam (test)

6

Chapter 3: Consumer choice. Demand functions Individual demand. Examples of demand functions: Cobb-Douglas, perfect substitutes, perfect complements. Example with non-convex preferences. The demand curve. Normal and inferior goods. Ordinary goods and Giffen goods. Substitutes and complements. Engel curves. Price elasticity of demand, cross-price elasticity of demand and income elasticity of demand. Chapter 3: Consumer choice. Demand functions Market demand. Adding up linear demand curves. Consumer surplus. Exercises of Chapter 3 Chapter 4: Substitution and income effects The income and substitution effects. The compensating variation in money income in the sense of Slutsky and of Hicks. Graphical analysis. Examples of income and substitution effects: Cobb-Douglas, perfect substitutes and perfect complements. The Slutsky equation. Exercises of chapter 4 Second Intermediate Exam (test and problems) Chapter 4: Substitution and income effects Examples of income and substitution effects: Cobb-Douglas, perfect substitutes and perfect complements. The Slutsky equation. Exercises Chapter 5: Buying and selling Net and gross demands. The budget constraint. Changing the endowment. Price changes. Offer curves and demand curves. The Slutsky equation revisited. Use of Slutsky equation. Chapter 5: Buying and selling Choice consumption-leisure. The labour supply curve. Comparative statics of labour supply. Examples. Third Intermediate Exam (test) Exercises of Chapter 5 Chapter 6: Intertemporal choice The budget constraint. Preference for consumption. Comparative statics. The Slutsky equation and intertemporal choice. Chapter 6: Intertemporal choice Inflation. Present value: a closer look. Analyzing present value for several periods. Use of present value. Examples. Choice of the interest rate.

7

8

9 10

11

12

13 14

15

Faculty of Economics and Business

RESOURCES BASIC BIBLIOGRAPHY Pindyck, R. and Rubinfeld, D. (2008): Microeconomics. 7th Edition. Pearson- Prentice-Hall. Varian. H. R. (2009): Intermediate Microeconomics. A modern Approach. 8th Edition. Norton & Company.

COMPLEMENTARY BIBLIOGRAPHY Nicholson, W., Snyder, C. and Wood, L. (2008): Intermediate Microeconomics. Thomson Learning.

OTHER RESOURCES