Syllabus

Nicholson, Walter. Microeconomic Theory: Basic Principles and Extensions. 7th ed. New York: Dryden Press, 1997.

A packet of reading materials is available at Graphic Arts. Readings (in addition to the text) will be assigned every week. The reading is important for the course, but some of the articles have more technical sections that are not required. Reading assignments will given in class and problem sets will provide further guidance as to what is important. Note that some class articles are on the web but not in the reader. Check the syllabus for a URL before you conclude that the article is missing.

Gibbons, Robert. Game Theory for Applied Economists. Princeton, N.J.: Princeton University Press, 1992. (Also in paperback.)
A great introductory reference for the game theory part of the class.

Simon, Carl P., and Lawrence Blume. Mathematics for Economists. New York: W. W. Norton, 1994.
This is a great source that starts with the basics and goes quite deep.

Shapiro, Carl, and Hal R. Varian. Information Rules: A Strategic Guide to the Network Economy. Boston: Harvard Business School Press, 1999.

This course will require approximately eight problem sets that are due in class and will be discussed in the weekly recitation section. The problems sets normally have two parts: one covering more technical problems out of the text book and class lectures and the other covering applications based on the assigned reading and class discussion. Problem sets will not be accepted after 5 pm on the stated due date. After 5 pm of the due date, you will receive no credit for your assignment. There will be no exceptions.

In order to accommodate unanticipated events, illness, or conflicts in your schedule, we will drop the problem set with the lowest score (for example, the one that you don’t hand in) when computing your problem set grade.

Grading: Problem sets 25%. 3 exams, 25% each. Plus in-class performance.

Your in-class contribution matters. I adjust grades upwards – sometimes substantially – for students who prepare for class, participate in class discussion, and take risks by sharing their ideas – even if those ideas aren’t always correct. Excellent class participation can increase your grade by as much as two-thirds of a letter grade (e.g., from straight B to A-). I reserve the right to cold call in class.

Three exams will be given, two in class and one during final exam period. The in-class exams will be 90 minutes each and the third exam will probably be closer to two hours. I attempt to stagger the exams so that they don’t fall during regular mid-term period. This means that you can give more time to studying for 14.03 exams, and the exams will be more challenging accordingly.

Each exam will only focus on the new material since the last exam, although of course you will need to understand the older material to apply the new material. The exams will be based on the textbook, the problem sets, the assigned readings, and classroom discussion. Performance on exams is highly correlated with performance problem sets.

The class is not graded on a strict curve; it’s possible for everyone to do well. At the same time, I do take into account relative performance when assigning grades; if the high score on an exam is 75 points, I call that an A, not a C+.

This is not a textbook class and you will do poorly if you miss the lectures on the assumption that you can make it up with the textbook. If you were planning to take another class that meets at the same time as 14.03, I strongly discourage it. Students who have tried this in the past fared poorly – and received little sympathy from the instructor. For better or worse, this is not a generic micro-theory class and accordingly our textbook does not adequately cover everything we’ll be discussing this semester.

Questions regarding grading are to be directed first to our TAs. Questions regarding the grading of a problem set or exams must be received by the TA no later than one week after the problem set or exam has been handed back. After one week, no appeals will be considered. To have the grading re-considered you must follow the following steps:

1. Take the material to the TA along with a note describing specifically what you believe the problem to be. (Make a copy of your note and the problem set / exam for your own safekeeping.) Leave the material and note with the TA along with your email address.
2. After the TA has contacted you by email, come to the TA’s office to discuss the question. 

This procedure is designed to help to ensure fair grading by providing your TA with an opportunity to think about your questions carefully before responding.

Class topics and readings are subject to revision. It is possible that some topics and related readings will be dropped if time runs short.

1.1. Overview of the Course

1.2. Review of Supply and Demand

1.3. Microeconomic Models, Comparative Statics, and Optimization

(*) Nicholson. Chap. 1 and 2.

Pindyck and Rubinfeld. Chap. 1.1–1.3.

(*) Krugman, Paul. "The Accidental Theorist." Slate (January 23, 1997).

(*) Card, David, and Alan B. Krueger. "Minimum Wages and Employment: A Case Study of the Fast-food Industry in New Jersey and Pennsylvania." American Economic Review 84, no. 4 (September 1994): 772–93.

(*) Freeman, Richard. "Comment: Review Symposium on Myth and Measurement: The New Economics of the Minimum Wage." Industrial and Labor Relations Review 48, no. 4 (July 1995).

(*) Kennan, John. "The Elusive Effects of Minimum Wages." Journal of Economic Literature 33 (December, 1995): 1950–65.

Card, David, and Alan B. Krueger. "Myth and Measurement: The New Economics of the Minimum Wage." Princeton: Princeton University Press, 1995.

2. Choice and the Theory of Demand

2.1. Rationality Axioms, Utility, and Indifference Curves

2.2. Constrained Utility Maximization, Demand Functions, Indirect Utility, the Expenditure Function

2.3. Individual Demand, Income and Substitution Effects

2.4. Substitutes and Complements, Market Demand, and Elasticities

2.5. Price Indices

(*) Nicholson. Chap. 3-7.

(*) Dwyer, G. P., and C. M. Lindsey. "Robert Giffen and the Irish Potato." American Economic Review (March 1984): 188–192.

(*) Waldfogel, Joel. "The Deadweight Loss of Christmas." American Economic Review 83, no. 5 (1993): 1328–36.

(*) Boskin, Michael, et al. "Toward a More Accurate Measure of the Cost of Living." Interim report to the Senate Finance Committee from the Advisory Commission to Study the Consumer Price Index. September 15, 1995.

(*) Krugman, Paul. "The CPI and the Rat Race." Slate (December 21, 1996).

3. Choice and Uncertainty, and Information

3.1. Uncertainty, Risk, Von Neumann-Morgenstern Expected Utility.

(*) Nicholson. Chap. 8.

(*) Kane, Thomas J., and Douglas Staiger. "Teen Motherhood and Abortion Access." Quarterly Journal of Economics 111, no. 2 (1996): 467–506.

4. Prices, Perfect Competition, General Equilibrium and Economic Efficiency

4.1. Economic Efficiency and Welfare Analysis

4.2. General Competitive Equilibrium

4.3. Trade, Comparative Advantage, Competitiveness, and Redistribution

(*) Nicholson. Chap. 15, 16, and 17.

(*) Scherer, F. M. "The U.S. Sugar Program." In Kennedy School of Government Case. 1992, pp. 1128.0.

(*) Krugman, Paul. "Competitiveness: A Dangerous Obsession." Foreign Affairs 73, no. 2 (March – April, 1994): 28–44.

(*) Krugman, Paul. "A Raspberry for Free Trade." Slate (November 21, 1997).

(*) Krugman, Paul. "The Tax Reform Obsession." New York Times Magazine (April 7, 1996): 36–37.

5. Information Economics: Insurance, Moral Hazard, Adverse Selection, and Signaling.

(*) Nicholson. Chap. 8 and 9. (Warning: sadly, chap. 9 is a poor introduction to the topic of information.)

(*) Rothschild, Michael, and Joseph E. Stiglitz. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Information." Quarterly Journal of Economics 90, no. 4 (1976): 630–649.

(*) Altman, Daniel, David M. Cutler, and Richard J. Zeckhauser. "Adverse Selection and Adverse Retention." American Economic Review 88, no. 2 (1998): 122–126.

(*) Akerlof, George A. "The Market for ‘Lemons:’ Quality Uncertainty and the Market Mechanism." Quarterly Journal of Economics 84, no. 3 (August 1970): 488–500.

(*) Spence, Michael. "Job Market Signaling." Quarterly Journal of Economics 87, no. 3 (1973): 355–374.

(*) Tyler, John H., Richard J. Murnane, and John B. Willet. "Estimating the Labor Market Signaling Value of the GED." Quarterly Journal of Economics 115, no. 2 (2000): 431–468.

6. Game Theory and Applications to Network Externalities in the Information Age

(*) Nicholson. Chap. 10.

Recommended: Gibbons. Game Theory for Applied Economists. Chap. 1 and 2.

(*) David, Paul E. "Clio and the Economics of QWERTY." American Economic Review 75, no. 2 (1985): 332–337.

(*) Shapiro, Carl, and Hal R. Varian. Information Rules. Boston: Harvard Business School Press, 1999, Chap. 3 and 7, pp. 173–226.

(*) Krugman, Paul. "Entertainment Values." Slate (January 22, 1998).