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Microeconomics II
COURSE NAME: Microeconomics II
COURSE CODE: This is a level II course for second year students

This is an extension of Microeconomics I. This course is divided into the following topics:
Introduction to concepts and definitions
• Understanding intermediate microeconomics
• Theory of consumer behaviour
• Market demand
• Theory of market demand in the present context
• Theory of production behaviour
• Theory of costs
• Market structures

Course Objectives
The objective of this course is to facilitate the student to have a deeper insight into Microeconomics.

Detailed Course outline

Introduction ( 4 Hrs)
• Review of basic concepts
• Scarcity, choice and resource optimization
• Choice, benefit and cost
• Review of what equilibrium is, type of equilibra, determinants of equilibrium price and quality and the bizarre situations

The Theory of Consumer Behaviour (14 Hrs)
The cardinal Utility Approach
• Total and marginal utility analysis
• Review of the equilibrium position of consumer
• Derivation of demand for a consumer

The Ordinal Utility Approach (Indifference Curve Approach)
• Analysis of the indifference curve approach and its link to the consumer budget constraint
• Mathematical derivation of consumer equilibrium
• Analysis of substitution, income and total price effects
• The ordinary demand curve
• The Hicksian income – compensated demand curve for a normal good
• Slutsky’s income – compensated demand curve for a normal good
• Bandwagon, snob and veblen effects
• Mathematical derivation of the demand curve

Consumer’s Surplus
• Marshallian surplus
• Determination of the value of consumer surplus using integral calculus
• An alternative measure of consumer’s surplus

Applications of the Indifference Curves Analysis
• The leisure – income trade off and the need for overtime rates higher than the normal wage rate
• Application of the indifference curves approach to the alternative government policies
• Indifference curves analysis and the theory of exchange (Edgeworth’s Contract Curve)
• Indifference curve analysis of the cost of living
Market Demand ( 4 Hrs)
• Derivation of market demand
• Determinants of market demand
• Analysis of the elasticity, expenditure and revenue
• Analysis of market demand, total revenue and marginal revenue: relationship between demand and total revenue; relationship between marginal revenue and price elasticity of demand; relationship between total revenue, marginal revenue and price elasticity of demand

The Theory of Market in the Present Context (6Hrs)
• The pragmatic approach to demand analysis
• Constant elasticity demand function
• Dynamic versions of demand function: distributed- -lag models of demand (derivation of Nerlove’s stock adjustment principle and the Houthakker – Taylor dynamic model)

The theory of Production Behaviour ( 10Hrs)
• Mathematic derivation of total product; average product and marginal product
• Analysis of isoquents: rates of technical substitution, elasticity of substitution, factor intensity and the Cobb – Douglas production function
• Analysis of law of production: law of returns to scale and the law of variable proportions
• Technological progress and the production function: Capital – deepening, labour – deepening and neutral technical progress
• Growth of the firm and the decision to invest: Baumol’s model of sales – revenue/profit maximization
• Price fluctuation and their causes, the cobweb cycles – types and the mathematical derivations
• Markets analysis: Walrasian and Marshallian assumptions of market behaviour
• Analysis of economic models: Graphical and mathematical models

The Theory of Costs ( 4 hrs)
• Critical minimum cost analysis
• Short run costs of the traditional theory: The U – shapes of the AVC and the ATC curve,
relationship between AVC and ATC curves and the relationship between MC and ATC curve

Market Structures (14 Hrs)
Perfect Competition
• Mathematical analysis of equilibrium
• Losses and the shut down decision
• Calculating the shut down price

• Computing the profit maximization price and output for a monopolist
• Diagrammatical illustration of price discrimination (first, second and third degree)
• Allocative inefficiency under monopoly
• Technical inefficiency and rent seeking
• Relevancy of monopoly to the Ugandan context

Monopolistic Competition
• Review of profit maximization in the short run and the long run7
• Evaluation of monopolistic competition in Uganda

• Oligopoly and strategic behaviour: Decision making under oligopoly (output quantity, product quality and advertising)
• Price leadership model: Cournot model, dominant firm price leadership – the stackelberg model and the hotelling
• Games theory and strategic behaviour

General equilibrium and welfare economics
• Cartels
• Formalities for the formation of a cartel
• Organizational difficulties
• Private cartels, government sponsored national cartels and international cartels
• Case study: OPEC
Suggested Reading List
The references include but not limited to the following:
1. Baumol W.J (1999), Economic Theory and operations Analysis, Third Ed. Prentice Hall
2. Leftwich, Richard (1986), The Price System and recourse Allocation, Fifth ed. Dry den Press
3. Mansfield Edwin (2000), Microeconomics, Theory and Application, New York
4. Thigan M.L.: Advanced Economic theory, Eight Ed.
5. Watson and Donald.S (2000), price theory and Its uses, Houghton Mifflin, Boston
6. Wates C.J: A Visual Approach to Economics Analysis
7. Varian (2000), Intermediate Microeconomics
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