Prof Michele Piccione 32L 4.07

Prof Timothy Besley 32L 3.37

This course is compulsory on the BSc in Econometrics and Mathematical Economics, BSc in Economics and MSc in Economics (2 Year Programme). This course is not available as an outside option nor to General Course students.

Microeconomics I (EC1A1) and either Quantitative Methods (Mathematics) (MA107) or Mathematical Methods (MA100).

Students on the MSc in Economics (2 Year Programme) must have completed Introductory Course in Microeconomic Principles (EC2A0) and be taking either Mathematical Methods (MA100) or Further Mathematical Methods (MA212) alongside.

In this course, we build on the tools learnt in Microeconomics I (EC1A1) to provide an in-depth analysis of microeconomic theory, as well as applications of the tools of microeconomics to concrete economic problems.



The first part of the course explores game theory and considers  a range of applications:

• Extensive Forms and Normal Form games.

• Pure and mixed strategy Nash Equilibria.

• Backward induction and Subgame Perfection.

• Applications: Cournot, Stackelberg, Bertrand with homogeneous and differentiated goods; entry games and limit capacity, bargaining.

• Repeated games – Application: cartel stability

• Games with incomplete information and  belief refinements.

• Applications: Limit Pricing, Auctions, Signalling.



The second part of the course builds on the analysis of demand and supply side in EC1A1 to analyse general equilibrium, market failures and the role of government intervention:

• The Market System as a General Equilibrium – Efficiency anddistribution.

• Living Interdependently – Public goods and externalities; private action and the role of government.

• Behavioural Economics – Markets with behavioural biases; the role of government.

• Political Economy – Effectiveness of government; preference aggregation; constraints on the power of the state.

• Asymmetric Information – Contracts and markets with moral hazard and adverse selection.

• Innovation – product and process innovation; the role of government in supporting innovation.

The course prepares students for third year optional courses.

20 hours of lectures and 10 hours of classes in the MT. 20 hours of lectures and 9 hours of classes in the LT. 1 hour of classes in the ST.

Students will also benefit from online Q&A sessions.

There will be a reading week in Week 6 of LT (no lectures, classes or support sessions that week).

Student learning will be supported through the EC2A1 Support Lab and through a dedicated discussion forum.

This course is delivered through a combination of classes and lectures totalling a minimum of 60 hours across Michaelmas Term, Lent Term and Summer Term.

Students are expected to complete the weekly problem sets and any required reading before attending class and are encouraged to work in small study groups on unassessed work.

A minimum of two pieces of work will be assigned and marked each term with feedback provided.

For the Michaelmas Term the set textbook is:

• Watson, Joel. “Strategy: An Introduction to Game Theory”, WW Norton (2013), 3rd edition

For the Lent Term, there is no set textbook. Lecture material is complemented with required additional reading from journal articles, reports, and other sources.

Exam (70%, duration: 3 hours, reading time: 15 minutes) in the summer exam period.
Coursework (30%) in the MT and LT.