We will be studying Microeconomics together this term as a mixed group drawn from Mansfield and Harris Manchester. Below are instructions and advice.
I will be updating this web page as the term progresses and you are encouraged to refresh it periodically to check for new information.
Professor Greg Taylor (greg.taylor@oii.ox.ac.uk)
Meetings will be as follows:
If you need to change your assigned group, either for a single week or for all weeks, you are welcome to negotiate a swap among yourselves, but please ensure not to exceed four students in any tutorial.
Microeconomics is one of the fundamental pillars around which economic thinking is organised. It is focused on the behaviour of individual economic agents—especially, but not exclusively, in market contexts. From the prelims, you should be aware that (1) we can build models of individual decision making and produce predictions about market outcomes, (2) an idealised perfectly competitive market produces outcomes that are, in some precisely defined respect, “good”, and (3) departures from ideal conditions can result in markets failing to produce good outcomes, motivating policy interventions.
This course extends and examines the limits of those ideas. We will see how the notion of a market equilibrium can be generalised to economies with many markets. In that context we’ll interrogate what it means to describe an outcome as “good”. We will take a much deeper look at some important ways a market can fail: externalities, market power, and information asymmetries. And we will think about how to extend our analysis of individual decisions into scenarios with uncertainty or risk and with strategic interaction.
Together, these topics provide a rich toolkit for thinking about when markets function well and what to do when they don’t.
The course does not follow any particular textbook and no book provides fully comprehensive coverage of the course material. A book that provides fairly good coverage and that I consider to have a good pedagogical style is:
Varian, H. R., & Melitz, M. J. (2024). Intermediate microeconomics: A modern approach (10th ed.). W. W. Norton & Company.
Prior editions of this book were authored by Varian alone. Any edition of this book going back a decade or more will have the material you need. Chapter numbers may vary in older editions.
Each week, I will ask you to attempt one or two exercises before the tutorial, so that you gain experience of tackling problems unaided. Please check this page for instructions and submit this work by noon on Thursdays, as a single PDF file emailed to the address above.
How can we model economies with multiple, interconnected markets, and what does this teach us about the origins of prices and the effects of trade?
Please attempt Problems 2 and 6 from the Tutorial 1 problem set.
You can consult Varian and Melitz chapters 32 (Exchange) and 33 (Production).
This tutorial will bridge between the first two weeks’ lectures. From week 1 we will apply GE models to think about the consequences of trade. Drawing on week 2, we will discuss mechanisms to aggregate individual preferences into a social preference that can inform policy.
Please submit an essay (max 1500 words) responding to either essay question 5 from the Tutorial 1 problem set or essay question 12 from the Tutorial 2 problem set. If you find it hard to make time for a full essay, you can submit a shorter essay or an essay plan/outline instead.
You can consult Varian and Melitz chapter 34 (Welfare).
More on the Ricardian and Hecksher-Ohlin trade models can be found in
Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2018). International economics: Theory and policy (11th ed.). Pearson.
In what sense can an allocation be said to be “good” and what can we say about the role of decentralised competitive markets in implementing good outcomes? We'll look at the principle of Pareto optimality and the fundamental theorems of welfare economics.
Please attempt Problems 1 and 8 from the Tutorial 2 problem set. If you feel you have enough time, you could also attempt Problem 6, which should be relatively quick.
You can consult Varian and Melitz chapters 34 (Welfare) and 32 (Exchange).
What do externalities mean for markets, what kinds of situations give rise to them, and what kinds of mechanisms can be used to mitigate their effects?
Please attempt Problems 4, 6 and 10 from the Tutorial 3 problem set.
You can consult Varian and Melitz chapters 35 (Externalities) and 36 (Public Goods).
How can we model economic interactions that are strategic, meaning each agent must anticipate and respond to the behaviour of others?
Please attempt Problems 4 and 9 from the Tutorial 4 problem set, as well as the problem linked here.
You can consult Varian and Melitz chapters 29 (Game Theory) and 30 (Game Applications).
If you want a broader coverage of the topic, a good choice might be
Dutta, P. K., & Vergote, W. (2022). Strategies and games: Theory and practice (2nd ed.). MIT Press.
Or, for a slightly mre advanced treatment:
Osborne, M. J., & Rubinstein, A. (1994). A course in game theory. MIT Press.
How can we analyse markets where competition is imperfect, and what does it mean for the regulation of competition?
You can consult Varian and Melitz chapter 28 (Oligopoly).
A broader text on the topic of Industrial Organization is
Belleflamme, P., & Peitz, M. (2015). Industrial organization: Markets and strategies (2nd ed.). Cambridge University Press.
Or, for a slightly mre advanced treatment:
Tirole, J. (1988). The theory of industrial organization. MIT Press.
A good reference on competition policy is:
Motta, M. (2004). Competition policy: Theory and practice. Cambridge University Press.
How can we model individual decision making when the outcomes of decisions are uncertain, and what can we say about individual attitudes and behaviours towards risk?
You can consult Varian and Melitz chapters 12 (Uncertainty) and 13 (Risky Assets).
What happens to the performance of markets when some agents are better informed than their trading partners (spoiler: it’s not good!) We’ll consider some ways to fix the resulting problems.
You can consult Varian and Melitz chapter 37 (Asymmetric Information).