Spring 2012

M W: 11:35 – 12:50, WLH 201

Dirk Bergemann

30 Hillhouse Avenue, #24

432-3592 Email

Office hours W 1 – 2:30

**Teaching Assistants.**

James Choy

Sabyasachi (“Sabi”) Das

Yingni Guo

Richard Langford

Vincent Pohl

**Discussion Sections.**

James Choy: F 10:30 – 11.20 am, 11:35-12:25 pm, ML 104

Sabyasachi (“Sabi”) Das: Th 4:00 – 4:50 am, 5:00 – 5:50 pm, LC 318

Yingni Guo: Th 7:00 – 7:50 pm, 8:00 – 8:50 pm, WLH 120

Richard Langford: F 10:30 – 11:20 am, 11:35 – 12:25 pm, HGS 218

Vincent Pohl: Th 7:00 – 7:50 pm, 8:00 – 8:50 pm, BASS LB L73

**Office Hours.**

Sabyasachi (“Sabi”) Das: F 2:00 – 4:00 pm, 28 HH, Tobin Seminar Room

Yingni Guo: F 10:00am – noon, 28 HH, Room 108

Richard Langford: F 1:30 – 3:30 pm, 28 HH, Tobin Lounge

James Choy: Th 4:00 – 6:00 pm, 28 HH, Tobin Lounge

Vincent Pohl: W 5:00 – 7:00 pm, 28 HH Tobin Lounge

**Assignments.**

For easy access, I will post all the reading assignments and problem sets directly in the table below. Please check (frequently if you like) for updates.

Week | Reading | Lecture Notes | Problem Set | Lecture Slides | |

1 | NS C2,3 | LN 1 | |||

2 | NS C4 | LN 2 | |||

3 | NS C5,6 | LN 3 | PS 1 PS1S | ||

4 | NS C5,6 | LN 4 | PS 2 PS 2 S | ||

5 | NS C5,6 | LN 5 | S9 | ||

6 | NS C13 | LN 6 | PS 3 PS 3S | S10 S11 | |

7 | NSC12,13 | LN 7 | PS 4 PS 4S | S12 S13 | |

8 | NS C7 | LN 8 | PS 5 PS5 S | ||

9 | NS C 9,10,11,14 | LN 9 | PS 6 PS 6S | S15 | |

10 | NS C 15 | LN 10 | S16 | ||

11 | NS C7,8 | LN 11 | PS 7 PS 7 S | S17 | |

12 | NS C8, 18 | LN 12 | PS 8 PS 8 S | S18 S19 | |

13 | NS C18,19 | LN 13 | PS 9 PS 9S | S20 S21 |

The entire and complete set of lecture notes is now available here. This was not an easy class, but how could expect it to be given the following and recent presidential testimony: (volume up!) presidential testimony. And finally, a set of lecture notes from the previous version of this class that I taught and that will guide my lectures might be useful background material (in partticular Section 5 on the Mathematics of Optimization.)

**Program.** This course introduces the major topics of microeconomic analysis. Economics is the study of choice, i.e. decision making in a world of limited resources. The course intends to provide students with economic and analytical tools to understand how consumers make choices, both with certainty and uncertainty; how firms take decisions, subject to technological constraints, and in relations to market structure and considering strategic interactions with other firms. In addition, a major purpose of the course is to describe how markets are organized both with symmetric and asymmetric information.

In contrast to many Introductory Economics classes, Intermediate Economics shifts the focus from learning facts about economics to learning techniques for examining economic questions. We will introduce and discuss the techniques in class. The homework problems will include applications that go beyond what we have done in class, and the exams will push the techniques yet further. More independence in applying the techniques will be expected as the class proceeds, so that by the end you are comfortable with a collection of analytical tools that you can apply in more advanced economics classes and in answering economic questions more generally.

The real world is rather complex with many people making a large number of economic decisions. Therefore, in order to gain some understanding of the economy, economists build simple models to examine complex economic issues. We analyze these models to make both predictions and policy prescriptions. In this course we will present the basic models and show how they are used with real world applications.

We shall often introduce and motivate the analysis with relevant emicpirical facts or experimental evidence. We shall use simple models to shed light on various economic phenomena. Economists have almost universally adopted the maximization paradigm as the primary tool for understanding human economic behavior. The maximization paradigm assumes people behave as if they maximize an objective function (happiness), and much of the course is devoted to applying that paradigm to various situations, starting with trade. The emphasis of the course will be on this analytic thinking. The goal of the course is for you to learn how economists think and analyze economic problems.

The course will place substantial emphasis on environments with strategic interaction (game theory) and with uncertainty and asymmetric information.

**Professor.** Dirk Bergemann, Douglass and Marian Campbell Professor of Economics, is conducting research in game theory, the economics of auctions and contracts and venture capital. He received his Ph.D. in economics from the University of Pennsylvania in 1994. He joined Yale in 1995 as an assistant professor, having previously served as a faculty member at Princeton University.

Dirk Bergemann has published widely in the leading economic journals, such as American Economic Review, Econometrica, Journal of Political Economy and the Review of Economic Studies on a wide range of topics, from dynamic pricing, venture capital financing to optimal auctions. He received grants from the National Science Foundation, the Alfred P. Sloan Research and the German National Science Foundation in support of his research. He is an editor of the Journal of the European Economic Association, and associate editor of the American Economic Journal: Microeconomics and Econometrica.

**Reading. **Walter Nicholson and Christopher Snyder, *Microeconomic Theory* (10^{th} Edition, Thomson South-Western/Cengage Learning, 2008). Textbooks are scandalously expensive. (You can find some interesting comments on textbook pricing here.) Last year, an 11^{th} edition of Nicholson and Snyder’s text has appeared. The 11^{th} edition is priced at about $200. With the very helpful cooperation of the Yale Barnes and Noble bookstore and the publisher of Nicholson and Snyder, to whom I am grateful, I have arranged to use the 10^{th} edition, at a price of about $90. There are also copies of the text on reserve at Bass Library.

A fascinating and historical introduction into the role of markets is presented by Macmillan (M) “Reinventing the Bazaar: A Natural History of Markets”, 2002 These two books represent the formal course list and are available at the Yale Barnes and Noble bookstore.

In addition, I will assign selected readings from recent research and case studies to illustrate the main theoretical insights and provide applications. Finally, a set of lecture notes from the previous that will guide my lectures might be useful background material.

Finally, if you are looking for some additional reading in the mathematics that we use during the course, then you might find it useful to look at Essential Mathematics for Economist Analysis by K. Sydsaeter and P. Hammond, Prentice-Hall, 2008, which is also on order with the Yale Barnes and Noble bookstore.

**Prerequisites: **Economics 121 requires a course in introductory microeconomics. Some students with strong backgrounds in economics and mathematics may prefer to opt out of the introductory microeconomics course and begin with Economics 121. Doing so requires permission of the director of undergraduate studies.

Economics 121 also requires the prior completion of a course in mathematics at the level of calculus or higher. This would typically be Math 112, 115, 118 or 120, depending on your background in mathematics and the level at which you start. Mathematics is often the most convenient tool for reasoning precisely, and we will use it regularly.

The mathematics requirement for this course is *single*-variable calculus. One of the first things we will do in class is learn some elementary techniques from *multi*-variable calculus. Should you take multi-variable calculus before taking Econ 121, or should multi-variable calculus be a prerequisite? No, for two reasons. First, there will be nothing conceptually new in what we do — the techniques from multivariable calculus used here will involve nothing other than taking more than one single-variable derivative. Second, the optimization techniques in which we are interested are typically either covered very, very briefly in a multi-variable calculus class, or are not covered at all. A multi-variable calculus class, while useful for many other reasons and eventually an imperative for economics majors, is thus not required before taking Econ 121.

**Review Session.** Each week there will be review sessions by the Teaching Assistants. The review session will primarily discuss the past problem sets and elaborate and discuss the material from the lecture. Discussion sections will meet weekly, beginning with the second week of classes. Discussion sections are an especially useful opportunity to work through problems and seek answers to questions.

**Keeping Up. **This course moves at a reasonable pace. In every week, your first priority should be to review the material of the week, including the lectures, the problem set and the assigned reading.

**Getting Help.** If you have questions on the class material or the problem sets, there are many ways to get help: (i) drop in during the teaching assistant office hours, (ii) ask your question during recitation and in class; (iii) drop in during the Professor Bergemann’s office hours; or (iv) talk to Professor Bergemann and the teaching assistants directly after class. Please do not send us your class-related questions by email (except for *personal* class-related matters).

**Grading.** Each midterm exam will account for 20% of your final grade. The homework and the final examination will account for 30% of your final grade.

**Problem Set.** Each week a new problem set will be introduced on Monday and it is to be returned on the subsequent Monday in class by the end of the lecture. The problem sets will be returned in your regular review session and the unclaimed problem sets will stay with your TA. The due date is strict. While you are encouraged to review your work for the problem sets in small groups (not more than three), it is essential that each student pursues first his/her own approach to the question before the group meeting. In microeconomics, the essential learning occurs by doing and thinking through problems and scenarios on your own. In addition, the group work will be enhanced and more productive by informed team members. Each student has to acknowledge the other group members on top of his/her problem set.

The problem set can be downloaded from this webpage on the dates they are assigned. Answers will typically be posted the day the homework is due. As a result, late homeworks will not be accepted. In particular, homeworks must be received *by the end of lecture* on the day the homework is due. (Under the appropriate circumstances a Dean’s excuse can allow you to complete the assignment later.) When computing the average homework score to enter your grade, your lowest individual score will be dropped. This allows you to miss a homework, if necessary, without adverse consequences. Homeworks will be returned and discussed in discussion sections.

You may on occasion have questions about exam grading. You should first compare your answer to the posted solution. If you would like a score to be reconsidered, your next step is to send a written request, explaining why you think reconsideration is appropriate and demonstrating that you know the correct answer. More detailed requests are better in this respect, and especially are likely to be more effective—requests of the form “check question 2” will not be effective. The vast majority of inquiries are concerned with whether partial credit has been appropriately apportioned. The overarching principle here is one of fairness, namely that students be evaluated consistently, and the reevaluation will hinge upon whether the grading in question matches our grading guidelines.

**Lectures. **The lectures are the core element of the course and attendance is mandatory. The following is an outline of the course schedule:

1/9: Introduction, Preliminaries

1/11: The Basic Model of Consumer Choice: Preference Theory and Utility Function

Problem Set 1 (Due Monday 1/23/12), Required Reading: NS Chapter 2 and 3

Optional Reading: Kahnemann and Tversky (1984)

1/13: The Mathematics of Optimization

Required Reading: NS Chapter 4

1/18: Budget, Demand and Choice

1/23: Budget, Demand and Choice

1/25: Demand Function and Elasticity

1/30: Comparative Statics: Slutsky, Substitution and Income Effect, Revealed Preference

2/1: Labor Supply and Time

2/6: Consumer Surplus

2/8: Midterm Exam 1, Suggested Solution, Make-Up Midterm 1, Make-Up Midterm Suggested Solution

2/13: Welfare, Taxes and Compensating Variation

2/15: Pareto Efficiency, Competitive Equilibrium and the Edgeworth Box

2/20: Competitive Equilibrium: First and Second Welfare Theorem

2/27: Decision under Uncertainty

2/29: Decision under Uncertainty: Financial Markets and Valuing Life

3/19: Supply and Profit Maximization

3/21: Competitive Firms

3/26: Monopoly: Price Discrimination

3/28: Midterm Exam 2, Midterm Exam 2 Solution, Make-Up Midterm 2, Make-Up Midterm 2 Solutions

4/2: Oligopoly Behavior

4/4: Strategic Behavior: Games

4/9: Strategic Behavior: Dominated Strategies and Mixed Strategies

4/11: Lemon’s Market and Adverse Selection

4/16: Second Degree Price Discrimination

4/18: Auctions: Sponsored Search Auction

4/25: Review Session

5/1: Final Exam, 2 – 5.30 pm, SLB AUD

Final Exam, Final Exam Solution