Welcome to Microeconomics for Free!

An introductory course that covers the principal theories of Microeconomics but also real world applications of each of those theories.

The result is a course that is rigorous but also practical and interesting.

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Welcome to my Microeconomics Course!

From over 20 years of teaching introductory Microeconomics, I know that this is often “the course that students love to hate” for two reasons:

The course material is quite demanding for someone studying it for the first time.
The course content can seem too theoretical, too quantitative and unrelated to the real world.

You know what? I agree!

My approach to teaching Microeconomics specifically aims at addressing these issues by:

Introducing each of the Microeconomics concepts slowly, using step by step building blocks.
Providing real world examples and applications for each and every piece of theory taught.

The result is a course that is rigorous but also practical and interesting. As such, I hope it will help students enjoy Microeconomics and recognize its power and relevance.

Prof. Anna Della Valle

Instructor

Dr. Della Valle holds a BA in mathematics from McGill University and MA and PhD degrees in economics from Columbia University.

After a career in economic consulting with National Economic Research Associates in New York, Prof. Della Valle has taught undergraduate and graduate economics at Columbia University’s Department of Economics and School of International and Public Affairs, New York University’s Department of Economics, Peking University’s School of Government and, most recently, at LIUC University in Italy.

Course Description

This is an introductory course in Microeconomics. It provides students with a solid foundation in microeconomic theory and its applications. The content and format of the course are aimed at helping students develop a clear, useful and open-minded way of thinking about microeconomic concepts.

The course covers the main areas of microeconomic theory:

Key economic concepts: opportunity cost, incentives, marginal analysis
How markets work: the demand supply model, elasticity, economic welfare, impact of price ceilings/floors, subsidies, and taxation on the market outcome
An Introduction to theory of the firm and producer theory
The 5 market models
Rationale for and forms of government intervention into markets

The course makes extensive use of real-world examples to illustrate and analyze these theories and their applications, including:

Estimating elasticity of demand in the US cigarette market
Effect of OPEC cartel strategy on price and profitability in the world oil market
Ownership structure in the Italian luxury market
Game theory applied to the movie industry
US and EU price fixing cases: vitamins, beer, flat screens
Antitrust: Microsoft, Intel, Google suits

It is organized using a lecture format. For each lecture, it provides:

reference to relevant chapters in the textbook
lecture notes and slides
lecture readings/video links
sample problems

It also includes testing materials to help you evaluate your progress and understanding:

problem set questions and answers for each lecture
midterm and final exam questions and answers

Textbook: N. Gregory Mankiw and Mark P. Taylor, Microeconomics, 4th edition, 2017, Cengage Learning. Other editions of the textbook are also fine.

NB: The textbook is a very accessible and well written introductory textbook but it is aimed at students with little or no quantitative skills. In contrast, this course and the materials provided make use of additional basic quantitative skills as described in the prerequisites section below.

Course Prerequisites: This is an introductory course in microeconomics and requires no prior background in economics. However, to effectively follow the course topics and exercises, requires the following basic math prerequisites:

basic algebra (solving linear equations)
geometry (areas of simple geometric figures)
graphing skills (plotting linear equations, finding intercepts, calculating slopes)
elementary finance: equity, debt, discounting, net present value, rates of return
elementary calculus (marginal analysis and first derivatives)

Course Syllabus

Key Economic Concepts

Opportunity cost, incentives, marginal analysis and why they matter.

The "economic" cost of getting an undergraduate degree

How Markets Work

Supply and demand, elasticity

The model of supply and demand is the basic economic model used to describe how market economies function. Defining and constructing demand and supply curves and functions, shifts vs. movements along the curves, deriving market clearing outcomes, elasticity of demand and supply, impact on revenues from changes in price in elastic versus inelastic markets.

Which markets are best described by the model of supply and demand
Estimating elasticity of demand in the markets for oil and cigarettes
Effect of OPEC cartel strategy on profitability in the world oil market

When we don’t “like” the market outcome

The effect of price floors, price ceilings, subsidies, positive and negative externalities on the market outcome.

Prices that are “too low”: agricultural subsidies and the WTO debate.
Prices that are “too high”: immunizations, electricity, rent control.
When supply or demand excludes costs or benefits to society: reducing pollution, building parks.

Market efficiency and welfare

Theoretically, the free interaction between buyers and sellers in the demand and supply model maximizes economic welfare and efficiency. This is one of the fundamental tenants of market economics. Defining and measuring economic welfare, consumer and producer surplus, relationship between market efficiency and welfare maximization.

The Economics of Taxation

Taxation changes the market outcome by creating a wedge between the price buyers pay and the price sellers receive with implications that are often counterintuitive. Effect of taxation of goods and services on market equilibrium, impact of taxes levied on buyers vs. sellers, tax incidence, effect of taxation on economic welfare.

Estimating the impact of cigarette taxes on demand and government revenues
Does a luxury tax really have the intended consequences?

Producer Theory

Theory of the firm

The study of what firms are, different forms of firm ownership, structure and organization, identifying and modeling firms’ objectives and strategic behavior.

Addressing the problem of separation of ownership from control in corporations
When CEOs have goals other than profit maximization: visionaries or megalomaniacs?
Benefits and challenges of incorporation
Ownership structures in the Italian luxury market

Production theory

Identifying the various components of a firm’s costs and the relationships between them, production functions and costs of production, economies of scale and scope.

Market Models

There are five main market models that describe how industries are structured in market economies:

Market Model 1: Perfect Competition

Many buyers and sellers relative to the size of the market with no one having any influence over price. The perfectly competitive model, firm behavior under perfect competition, short-run and long-run supply curves and market outcomes.

Market Model 2: Monopoly

A single seller that supplies the entire market and thus has control over price and output. The monopoly model, firm behavior under monopoly, welfare loss under monopoly.

Incumbent advantage: monopolist’s entry-deterring strategies

Market Model 3: Monopolistic Competition

Many sellers (as in perfect competition), some of whom are able through branding or product differentiation to control a portion of the market (as in monopoly.) Product differentiation, marketing, advertising and branding; estimating the costs vs. impact of product differentiation and marketing on demand; Lancaster’s characteristic model.

Why do consumers pay premiums of 50-80% more for brand name products (even when they have identical ingredients?)
US firms with top advertising budgets
Brand “Italy”

Market Model 4: Cooperative Oligopoly

Few sellers who join together so as to influence market price and output.

Examples of successful cooperative oligopolies
Why cartels tend to be unstable
US and EU cartel antitrust suits: vitamins, beer, flat screens.

Market Model 5: Non-Cooperative Oligopoly

Few sellers who actively compete with one another and understand that they are affected by the actions of the other sellers. Early models to study noncooperative oligopoly behavior: early Cournot and Stackelberg models; introduction to game theory, Nash equilibrium, dominant strategies, repeated games.

Using game theory to model non cooperative oligopoly strategies
Mafia solution to the prisoner’s dilemma
The risky business of making movies: from phenomenal success to huge losses

Firm Strategic Behavior

Pricing strategies: price discrimination, predatory pricing, two-part tariffs.
Investment strategies: research and development, vertical and horizontal mergers and acquisitions, tie-in sales, investments to raise rivals’ costs.

Government Intervention into Markets

Rationales for Government Intervention

Economic rationales for government intervention into markets? Market failure, externalities, public goods, common resources, natural monopoly, equity concerns, industries affected by the “public interest.”

Forms of Government Intervention

These include: complete or partial government ownership, private ownership with government regulation of entry, standards, investments and/or prices, price ceilings, price floors, tariffs, subsidies, antitrust (overview and scope of antitrust legislation in the US, landmark antitrust cases), patents and copyrights. When private solutons work despite exernalitites (Coase Theorem).

When sellers have more information than buyers: the used car market
Interventions to reduce CO2 emissions
Antirust: Microsoft, Intel, Google suits

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