ECN401 Microeconomic Theory with Applications

• Topics

  This course aims to teach students how to apply principles from microeconomic theory to structure and address real-world problems. Students will get a solid understanding of the microeconomic models of consumer and firm decision-making behavior, why markets sometimes fail, and the use of interventions to achieve the best possible outcomes for society. However, rather than just teaching students the theoretical principles of microeconomics, we will also show how it is practiced by firms, ministries, and organizations and thereby demonstrate the direct relevance for the student’s professional life.

  To achieve this goal, the course is organized around several distinct topics. For any given topic, we will cover the most important microeconomic theories to structure ideas into hypotheses and predictions about what we expect to happen under different conditions. Next, we want to think about ways to test the theory and discuss different empirical approaches that enable us to draw conclusions about causal relationships. Importantly, conclusions are drawn by bringing both elements together; We use real-world data to test theory and use theory to interpret real-world data. By highlighting the interconnection between theory and empirical evidence, students will appreciate the usefulness of economic theory, the importance of careful analytical thinking when conclusions are drawn, and that conclusions based on intuitions and preconceptions can be very misleading or sometimes right out wrong.

  For example, consider the potential effects of a merger between two competitors. If the merging firms are close competitors, the merger will induce upward price pressure. On the other hand, if the merged firm is more efficient and marginal cost decreases, this will cause downward price pressure. Competition Authorities will not allow a merger if they expect it to lead to a price increase. How should they decide whether to allow a specific merger or not?

  Examples of topics that are covered in the course (non-exhaustive list):

  • Public policies to reduce poverty and inequality; In-kind versus cash transfers, Universal Basic Income, minimum wages, disability income.  
  • The microeconomics of price formation in the energy market; Technology, cost structure, and the supply curve.
  • Optimal taxation, tax salience, and tax incidence.
  • Behavioral economics; rationality and irrationality; Inattention and salience.
  • Strategic behavior by firms in entry situations and the role of commitment.
  • The use of pricing pressure indicators to provide proxies for the welfare effects of mergers.
  • Good and bad sources of market concentration.

• Learning outcome

  The course will give students an understanding of how we can apply economic theory at a broad level.

  Knowledge

  Upon completion of the course, the student can…

  • Describe the basic insights within production and consumer theory and the underlying theoretical models.
  • Identify the different tools that can be used to study the interaction between firms in the marketplace to make predictions about a firm's strategy.
  • Understand the policies and practices that can improve the outcomes for individuals or groups of individuals and the theoretical foundation.

  Skills

  Upon completion of the course, the student can…

  • Perform basic microeconomic analysis of real-world problems.
  • Formulate problems involving strategic interaction as non-cooperative games and use the appropriate solution concepts.
  • Draft a suitable empirical design that provides data to test the models.

  General competence

  Upon completion of the course, the student can…

  • Analyze problems that involve decisions made by firms and individuals.
  • Read research papers or professional reports related to topics in the course and reflect upon how conclusions are drawn in light of theory and empirical design.
  • Interpret how economic theory can be used to formulate predictions about behavior, how the theory can be tested by establishing causal relationships through use of data and research design, and how the empirical evidence can be interpreted in light of theory.

• Teaching

  Plenary lectures and prepared class discussions.

  Lectures will be held physically in the auditorium, with no streaming or recording. It's essential that students attend class, as we will emphasize discussion and dialogue in the lectures.

  Guest lecturers from practitioners (e.g., Norwegian Competition Authority, Oslo Economics, Norwegian Tax Authority).

• Required prerequisites

  Students should be familiar with the material covered in the undergraduate methods and microeconomics courses.

• Compulsory Activity

  None.

• Assessment

  Two compulsory written assignments (30% each) and a 3-hour digital school exam at the end of the term (40%).

  The assignments can be handed in individually or in groups of maximum two students. Students will be given approximately two weeks to complete the assignments. The assignments must be written in English.

  Students can retake each component independently.

• Grading Scale

  Grading scale A - F.

• Literature

  The course will be based on a selection of real-world examples and empirical articles.  A list of academic, popular science, and case study materials, will be announced at the start of the course.

  In addition to these, students are expected to read the relevant chapters in:

  Samiran Banerjee (2021) Intermediate microeconomics: A tool-building approach. 2nd edition (London: Routledge)

  Avinash Dixit, Susan Skeath, and David McAdams (2020) Games of strategy (5th edition) (Norton)

• Permitted Support Material

  Calculator 

  One bilingual dictionary (Category I) 

  All in accordance with Supplementary provisions to the Regulations for Full-time Study Programmes at the Norwegian School of Economics Ch.4 Permitted support materialhttps://www.nhh.no/en/for-students/regulations/https://www.nhh.no/en/for-students/regulations/ and https://www.nhh.no/en/for-students/examinations/examination-support-materials/https://www.nhh.no/en/for-students/examinations/examination-support-materials/