Economics 2020a HBS 4010 HKS API 111 Microeconomic Theory I Fall 2010 Faculty Chris Avery chris avery harvard edu KSG L208 617 496 4063 Teaching Fellows Abigail Friedman Wonbin Kang Meetings Elon Kohlberg ekohlberg hbs edu HBS Morgan Hall 617 495 6310 afriedm fas harvard edu kang3 fas harvard edu Mon and Wed from 8 35 9 55 in room L 140 at the Kennedy School IMPORTANT NOTE There are two Littauer buildings at Harvard The Economics Department is in one The other is at the Kennedy School Course Objectives API 111 is the first semester in a year long course in microeconomic theory that serves as an applied alternative to the more theoretical microeconomics sequence of Economics 2010a and 2010b Intended primarily for students who anticipate doing original research employing the tools of microeconomic theory this doctoral level course is designed for the dual purposes of giving students a systematic grounding in microeconomics and preparing them to use economic models in their own research It addresses the broad methodological topics of consumption theory production theory general equilibrium industrial organization information economics and game theory Course readings are chosen to demonstrate how each theoretical idea takes shape in published research on applied topics in microeconomics organizational analysis and political science Audience The API 111 112 sequence is suitable for doctoral students in any field and for advanced Public Policy MPP or MPA students in the Kennedy School However it is primarily intended for students who will be reading or producing research with microeconomic content While the topics in this course are mathematical the emphasis is on economic content and research methodology rather than proofs and technical details Nevertheless mathematical arguments are employed to help explain the intuition of the theories studied Students without strong background in the areas mentioned below see prerequisites will likely be better served by delaying the API 111 112 sequence until they develop the proper background Prerequisites The formal prerequisite for the course is Multivariate Calculus typically two years of college calculus It is also helpful to have background in calculus based probability theory e g API 201A or Statistics 110 and intermediate microeconomics e g API 101A or Economics 1011 Students who do not have all of these prerequisites may still be able to enroll in the course but should consult with Professor Avery or Professor Kohlberg before doing so 1 Readings The main text for the course is Andreu Mas Colell Michael D Whinston and Jerry R Green Microeconomic Theory Oxford University Press 1995 also known as MWG Other alternative texts include David Kreps A Course in Microeconomic Theory Princeton University Press 1990 and Hal Varian Microeconomic Analysis In addition Angus Deaton and John Muellbauer Economics and Consumer Behavior Cambridge University Press 1980 provides an alternative treatment of consumer theory the subject of the first unit of the course Copies of all texts as well as additional materials will be made available through the KSG and Baker Business libraries Nolan Miller who taught the course for many years produced a set of lecture notes as a supplement to the material in Mas Colell Whinston and Green These notes will be available through the course website Students looking for a math reference should consider Simon and Blume Mathematics for Economists or Chiang Fundamental Methods of Mathematical Economics Review Sessions The Teaching Fellows will be conducting weekly review sessions which will go over difficult material from the lectures and readings Identical review sessions will be held at three different times each week to guarantee that almost everyone will be able to regularly attend one Review sections are tentatively planned for Thursday 4 5 30 Friday 8 30 10 and Friday 10 11 30 Requirements and Evaluation Evaluation will be based on 9 problem sets a midterm exam and a final exam The midterm will comprise approximately 1 3 of the final grade the final exam approximately 2 3 of the final grade and homework will be used in order to determine grades for students who are on the border between two grades A full set of practice problems and solutions will be provided on the course website Typically there are about four problems per lecture designed to highlight the key technical skills and concepts associated with each lecture It is strongly recommended that students devote time to working through these problems and solutions rather then trying to build a comprehensive understanding of the material in the textbook Web site Relevant course materials will be posted on the FAS web site for this course http www courses fas harvard edu ec2020a 2 Schedule of Lectures and Readings UNIT 1 CONSUMER THEORY Lecture 1 September 1 Constrained Choice and Revealed Preferences Readings MWG Ch 2A 2F Miller Notes Ch 1 2 7 NO CLASS ON SEPTEMBER 6 LABOR DAY Lecture 2 September 8 Specialization vs Diversification in Consumer Choice Readings MWG 3A 3C Miller Notes 3 1 3 3 Lecture 3 September 10 Tradeoffs and Optimal Consumption Readings MWG 3D Miller Notes 3 3 Lecture 4 September 15 Wealth and Consumer Choice Readings Miller Notes 4 1 Lecture 5 September 17 Duality and the Consumer Price Index Readings MWG 3E 3F Miller Notes 3 4 Optional Readings Michael Boskin et al Consumer Prices the Consumer Price Index and the Cost of Living Journal of Economic Perspeectives Winter 1998 p 3 26 Jerry Hausman Sources of Bias and Solutions to Bias in the Consumer Price Index Journal of Economic Perspectives Winter 2003 p 23 44 Lecture 6 September 22 Welfare Evaluation Readings MWG 3G 3I Miller Notes 3 4 Lecture 7 September 24 Empirical Estimates of Consumer Welfare Optional Readings Robert Jensen and Nolan Miller Giffen Behavior Theory and Evidence American Economic Review forthcoming Robert Jensen and Nolan Miller Do Consumer Price Subsidies Really Improve Nutrition Nutrition Kennedy School working paper 3 UNIT 2 CHOICE UNDER UNCERTAINTY Lecture 8 September 29 Choice under Uncertainty Readings MWG 6A 6B Miller Notes 6 1 Lecture 9 October 4 Risk Aversion Readings MWG 6C Miller Notes 6 2 Lecture 10 October 6 Insurance and Investment Readings Miller Notes 6 3 NO CLASS ON OCTOBER 11 COLUMBUS DAY Lecture 11 October 13 Comparing Distributions using Stochastic Dominance Wednesday October 7 Readings MWG 6D Avery Notes MIDTERM EXAMINATION Monday October 18 covers Lectures 1