Lahore University of Management Sciences

ECON 411 – Advanced Microeconomics

Spring 2018

Instructor Mushtaq A. Khan

Room No. Room 251, Economics Wing, First Floor, Academic Block
Office Hours Mondays and Wednesdays, 11:30 – 1:00 or by appointment
Email mushtaq@lums.edu.pk
Telephone 8078
Secretary/TA Khalid Pervaiz
TA Office Hours
Course URL (if any)

Course Basics
Credit Hours 4
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 100 minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week Duration
Tutorial (per week) Nbr of Lec(s) Per Week Duration

Course Distribution
Core (For Econ-Math only)
Elective Yes
Open for Student Category
Close for Student Category

COURSE DESCRIPTION

COURSE PREREQUISITE(S)

 Intermediate Microeconomics
 A working knowledge of undergraduate microeconomic theory (Intermediate Microeconomic) is required. Abilities
 to use techniques of mathematical optimization and the method of comparative statics are necessary.

COURSE OBJECTIVES
This course is intended to provide an introduction to advanced microeconomic theory in the light of cotemporary
 thoughts, primarily for senior level undergraduate and first year graduate students. Attention will be given to general
equilibrium theory and applications, welfare economics, and the economics of choice under uncertainty.

Learning Outcomes




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Grading Breakup and Policy

Assignments: (4) 20%

Home Work:
Quizzes: (2) 10%
Class Participation:
Attendance:
Midterm Examination: 30%
Project:
Final Examination: 40%

Examination Detail

Yes/No: Yes
Combine Separate: separate
Midterm
Duration:
Exam
Preferred Date:
Exam Specifications:

Yes/No: Yes
Combine Separate: Separate
Final Exam
Duration:
Exam Specifications:

COURSE OVERVIEW
Week/ Lecture/ Recommended Objectives/
Topics
Module Readings Application
Varian Ch. 17, 18.
General Equilibrium: Linear and Non-
linear Models, Fixed Coefficient Silberberg & Suen Chs. 15, 16.
Sessions 1-3 Technology, Duality Analysis in General
Equilibrium, Contract Curve and Layard & Walters Ch. 2.
Production Possibilities Frontier
Mayer
Varian Ch. 21.
The Stolper-Samuelson Theorem, The
Rybcznski Theorem, Pure Exchange Silberberg & Suen Chs. 15, 16.
Model of General Equilibrium, The Core
Sessions 4-7 of an Exchange Economy, Walrasian Layard & Walters Ch. 2.
Competitive Adjustment Mechanism,
Existence and Stability of Walrasian Stolper and Samuelson
Equilibria
Mayer

Pareto Optimality in Production and

Varian Ch. 21.
Consumption, Overall Pareto Optimality,
Sessions 7-9 The Efficiency of Perfect and Imperfect Silberberg & Suen Chs. 15, 16.
Competition, External Economies and
Diseconomies in Production and Layard & Walters Ch. 2.
Consumption
Welfare: Measurement of Welfare
Varian Ch. 22.
Sessions 10-11 Change, Optimal Pricing to Maximize
Social Welfare
 Lahore University of Management Sciences
Silberberg & Suen Ch. 17.
Layard & Walters Ch. 1.
Public Goods: Efficient Provision,
Demand Revealing Mechanism Varian Ch. 23, 24.
Externalities: Solution, Pigovian Taxes, Silberberg & Suen Ch. 17.
Sessions 12-14
Missing Markets, Property Rights,
Compensation Mechanism, Efficiency Layard & Walters Chs. 3.
Conditions

Session 15 MIDTERM

The Expected Utility Hypothesis, The

Varian Ch. 11.
Expected Utility Theorems
Mckenna Chs. 1, 2, 3.
Sessions 16-17
Silberberg & Suen Ch. 13.
Friedman and Savage
Attitudes Toward Risk, The Measurement
Varian Ch. 11.
of Risk Aversion, Risk Shedding and
Risk Pooling, Risk Bearing Mckenna Ch. 3.
Sessions 18-20
Silberberg & Suen Ch. 13.
Ehrlich and Becker
Demand for Protection and Insurance,
Varian Ch. 11.
Moral Hazard and Adverse Selection
Mckenna Chs. 6, 7.
Sessions 21-22
Silberberg & Suen Ch. 13.

Pauly
Routhchild
Theory of Firm under Uncertainty, Varian Ch. 20.
Production Uncertainty
Mckenna Chs. 4, 5.
Sessions 23-25
Silberberg & Suen Ch. 13.

Sandmo
Ishii
Price and Cost of Uncertainty,
Varian Ch. 20.
Consumption and Saving Decisions under
Uncertainty Mckenna Chs. 4, 5.
Sessions 26-28
Silberberg & Suen Ch. 13.

Sandmo
Leland
FINAL
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Textbook(s)/Supplementary Readings

Required Readings:
Silberberg, E., and Wing Suen (2000). The Structure of Economics: A Mathematical Analysis, Third edition, McGraw-Hill.

Varian, Hal (1992). Microeconomic Analysis, Third edition, W.W. Norton.

McKenna, C.J.(1986). The Economics of Uncertainty, Oxford University Press.

Layard, P.R.G., and A.A. Walters (1988). Microeconomic Theory, International Edition, McGraw-Hill.

Additional Readings:
Jehle, G.A., and Philip J. Reny (2000). Advanced Microeconomic Theory, Second edition, Addison Wesley.

Mas-Colell, A, Whinston, M.D., Green, J.R. (1995). Microeconomic Theory, Oxford University Press.

Kreps, David M. (1990). A Course in Microeconomic Theory, Princeton University Press.

*Friedman, M. and L. Savage, “The utility Analysts of Choices Involving Risk”, Journal of political Economy, 56 (1948): 279-304.

Holthausen, Duncan M., “Hedging and the Competitive Firm Under Price Uncertainty”, The American Economic Review, Vol. 69,
No. 5. (Dec., 1979), pp. 989-995.

Lapan, Harvey, Giancarlo Moschini, and Steven D. Hanson, “Production, Hedging, and Speculative Decisions with Options and
Futures Markets”, American Journal of Agricultural Economics, Vol. 73, No. 1. (Feb., 1991), pp. 66-74.

Aradhyula, Satheesh V. and E. Kwan Choi, “Production, Hedging, and Speculative Decisions with Options and Futures Markets:
Comment”, American Journal of Agricultural Economics, Vol. 75, No. 3. (Aug., 1993), pp. 745-747.

Ahsan, Syed M., Ali A. G. Ali, and N. John Kurian, “Toward a Theory of Agricultural Insurance”, American Journal of Agricultural
Economics, Vol. 64, No. 3. (Aug., 1982), pp. 520-529.

Nelson, Carl H., and Edna T. Loehman, “Further toward a Theory of Agricultural Insurance”, American Journal of Agricultural
Economics, Vol. 69, No. 3. (Aug., 1987), pp. 523-531.

Paris, Quirino, “Long-Run Comparative Statics under Output and Land Price Uncertainty”, American Journal of Agricultural
Economics, Vol. 70, No. 1. (Feb., 1988), pp. 133-141.

Meyer, Jack, and Lindon J. Robison, “The Aggregate Effects of Risk in the Agricultural Sector”, American Journal of Agricultural
Economics, Vol. 73, No. 1. (Feb., 1991), pp. 18-24.

Flacco, Paul R., and Douglas M. Larson, “Nonparametric Measures of Scale and Technical Change for Competitive Firms under
Uncertainty”, American Journal of Agricultural Economics, Vol. 74, No. 1. (Feb., 1992), pp. 173-176.

Brunk, G. G., “A Test of the Friedman-Savage Gambling Model”, Quarterly Journal of Economics, (May 1981): 341-348.

*Ehrlich, I. and G. S. Becker, “Market Insurance, Self-Insurance, and Self-Protection”, Journal of Political Economy, 82 (1972):
623-648.

Chang, Y. M. and I. Ehrlich, “Insurance, Protection from Risk, and Risk-Bearing”, Canadian Journal of Economics (August 1985):
574-586.

*Pauly, M. V., “Overinsurance and the Public provision of Insurance: The Role of Moral Hazard and Adverse Selection”, Quarterly
Journal of Economics, 88 (1974): 44-54.
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*Routhchild, M. and J. Stiglitz, “Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect
Competition”, Quarterly Journal of Economics, 90 (November 1976): 629-649.

*Schmitz, A., H. Shalit and S. J. Turnovsky, "Producer Welfare and the Preference for Price Stability", American Journal of
Aqricultural Economics, (1981): 158-160.

*Sandmo, A., "On the Theory of the Competitive Firm under Price Uncertainty", American Economic Review, (March 1971): 65-71.

*Sandmo, A., "The Effect of Uncertainty on Saving Decisions”, The Review of Economic Studies, (July, 1970): 353-360.

*Ishii, Y., "On the Theory of the Competitive Firm under Price Uncertainty: Note", American Economic Review, (September 1977):
768-769.

Batra, R. and A. Ullah, "Competitive Firm and the Theory of Input Demand under Uncertainty", Journal of Political Economy, (June
1974): 537-548.

*Leland, H. E., "Saving and Uncertainty: The Precautionary Demand for Saving", Quarterly Journal of
Economics, 82 (1968): 465-473.
*Sandmo, A., "The Effect of Uncertainty on Saving Decisions", Review of Economic Studies, 37 (1970): 353-360.

Dreze, J. H., "Consumption Decisions under Uncertainty”, Journal of Economic Theory, 5 (1972): 308-335.

*Chang, Y. M. and I. Ehrlich, “On the Economics of Compliance with the Minimum Wage Law", Journal of Political Economy, 93
(January 1985): 84-91.

Chang, Y. M., "Noncompliance Behavior of Risk-Averse Firms under the Minimum Wage Law", Public Finance Quarterly, 20 (July
1992): 390-401.

*Stolper, W. R., and P. A. Samuelson, “Protection and Real Wages”, Review of Economic Studies, 9 (1941): 58-73.

Jones, R. W., “The Structure of Simple General Equilibrium Models”, Journal of political Economy, 73 (1965): 557 -572.

Mayer, W., “Short-Run and Long-Run Equilibrium for a Small Open Economy”, Journal of Political Economy, 82 (1974): 955-967.

Jones, R. W., “Distortions in Factor Markets and the General Equilibrium Model of Production”, Journal of Political Economy, 79
(1971): 437-459.

Harberger, A. C., “Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay”, Journal of Economic Literature,
9 (1971); 785-797.

Baumol W. and Bradford, D., “Optimal Departures from Marginal Cost Pricing”, American Economic Review, 69 (1970): 256-283.

Rabin, M. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem." Econometrica 68, no. 5 (2000): 1281-92.

Hirshleifer, J., and J. Riley. The Analytics of Uncertainty and Information. Cambridge University Press, 1992, Chapter 5.

Hart, O., and B. Holmstrom. "The Theory of Contracts." In T. Bewley (ed.), Advances in Economic Theory -- Fifth World Congress.
Cambridge University Press, 1987.