MICROECONOMICS III

The purpose of the course is to present and analyze how general equilibrium is attained in a perfectly competitive economy. Using a simple model of exchange, first students are able to understand how the existence of perfect competition in both factor and good markets results into an efficient allocation of the available resources as well as into an efficient distribution of goods and services. Further, the role of prices is explained and how market forces ensure a Pareto efficient equilibrium. In the next parts of the course the two main reasons behind market failure in modern economies are presented and discussed explicitly. In particular, the existence of consumption and production externalities is discussed describing at the same time theoretical consistent solutions in a competitive environment. Then the nature of public goods is analyzed together with the market weaknesses in supplying them in a competitive economy. In the last part of the course the role of central government is explained together with appropriate public policies available to attain Pareto efficient allocation in real economic conditions. Alternative criteria in choosing among alternative income and consumption distributions are presented, together with the necessary conditions for the maximization of the social welfare.

Objectives

The purpose of the course is to present and analyze how general equilibrium is attained in a perfectly competitive economy.

Prerequisites

MICROECONOMICS I, II PROBABILITY THEORY

Syllabus