University of Wollongong - ECON215: Microeconomic Theory and Policy (Solutions)

This subject provides the theoretical foundation of modern microeconomic analysis by building upon the basic concepts covered in introductory microeconomics. Topics include the free market system and its operation under market regulation, and the imposition of excise taxes and subsidies. The theory of consumer behaviour is developed and applied to household choice problems, the index number problem, methods of taxation, and intertemporal choice. The theory of production and its costs is discussed, and used to develop models of optimal choice by producers in the long run and short run, including optimal output expansion, optimal input substitution, responses to technological change, and economies and diseconomies of scale. Models of market organization are studied with emphasis on monopoly power, oligopoly (including models of Nash, Cournot, Bertrand, and Stackelburg equilibria) and monopolistic competition. Welfare effects of market behaviour and regulation are analysed. Game theory is introduced and applied to simple problems of strategic choice in duopoly markets. The nature and consequences of asymmetric information are studied (including adverse selection, moral hazard, the principal agent problem, and signalling).

✔ Learning Outcomes:

On successful completion of this subject, you will be able to: 

• explain, through the use of graphical analysis and written exposition, the theory of consumer choice;
• examine the theory of production and costs of the firm efficiency characteristics of free and regulated markets;
• identify the characteristics of alternative types of market structure;
• apply the conceptual framework and tools of analysis of microeconomics to analyses of market behaviour under competition, monopoly, oligopoly, and monopolistic competition; and,
• explain with examples the basic concepts of game theory (Cournot-Nash and Bertrand-Nash equilibria, dominant strategies) and apply the methodology of game theory to analyses of behaviour in oligopolistic markets.