MICROECONOMICS - 2

Microeconomics studies the decision-making processes of economic agents—individuals, households, firms, governments, and other organizations—within the constraints imposed by available resources and alternatives. It also examines how these agents interact across different market settings and how their decisions shape market outcomes.

This course aims to familiarize students with the main perspectives, analytical approaches, and methodologies used by economists to study microeconomic phenomena. It offers a comprehensive introduction to the core concepts, theories, and analytical tools of microeconomics, adopting primarily a normative perspective and placing particular emphasis on welfare implications.

This course is the second part of the Microeconomics sequence in the Business Administration and Management degree program. Whereas the first part, Microeconomics 1, focuses on the individual behavior of consumers and producers, this second part, Microeconomics 2, examines how consumers and producers interact in different market settings and analyzes the role and effects of government intervention on market outcomes.

On successful completion of this course, students will be able to:
1. Analyze the behavior of firms and consumers in competitive markets, and derive equilibrium prices and quantities from market demand and supply.
2. Evaluate the impact of government interventions, including taxes, subsidies, and trade restrictions, on market allocation, welfare, and efficiency.
3. Compare and assess alternative market structures by examining pricing and output decisions under monopoly and duopoly, including price discrimination and collusive behavior.
4. Understand how asymmetric information shapes market outcomes and how institutional responses, such as warranties, emerge to mitigate its effects.

Students are required to have excellent knowledge and training in secondary-school level mathematics:
1. Arithmetic:
a. Natural and real numbers, and fractions.
b. Computation and properties of the traditional arithmetic operations—addition, subtraction, multiplication, and division.
2. Elementary algebra:
a. Manipulation of variables as if they were numbers.
b. Simplification of algebraic expressions.
c. Properties of equalities and inequalities.
d. Resolution of linear equations of one variable.
3. Geometry:
a. Computation of length and area of traditional two-dimensional geometric figures—square, triangle, circumference.
b. Angles.
c. Congruency of geometric figures.
4. Graphs analysis: Basic identification, visualization, and analysis of the relationships between entities in a graph.

1. Competitive markets
1.1. “Price taking” behavior of firms
1.2. Market demand and market supply
1.3. Competitive equilibrium
2. Government interventions
2.1. Taxes and subsidies
2.2. Trade protectionism
3. Market power concentration
3.1. Monopoly and price discrimination
3.2. Duopoly and collusion
4. Asymmetric information
4.1. Adverse selection in the market for “lemons”
4.2. Signaling and the value of warranties

This course is designed to make the core concepts of microeconomic theories accessible to students with only a basic mathematical background by replacing the standard analytical approach with a discrete framework in which goods are treated as indivisible units. This shifts the focus from calculus and algebra to countable, visualizable structures, logical reasoning, and algorithms requiring minimal mathematical preparation. However, because this teaching methodology is non-standard within the profession, there is no textbook on which students can rely for individual preparation.

To address this issue, the teaching material for this course has been designed to be self-contained and comprehensive, so that students can rely entirely on it to achieve the learning goals and prepare for the examination. The slides are self-contained and present the material with the necessary level of detail and depth to serve as a comprehensive resource for individual study. They are complemented by exercises in the form of problem sets, which help students not only consolidate and formalize the knowledge acquired in class, but also expose them to exercises that require critical thinking.

All topics covered in this course are standard in any undergraduate Microeconomics textbook. Students may therefore use any such textbook to explore alternative perspectives, deepen the topics studied in class, examine new subjects and questions, and pursue their curiosity further. In particular, students may consult the following two textbooks:
• Bernheim, B. D., Whinston, M. D., 2008, Microeconomics McGraw-Hill/Irwin, Inc. New York, NY.
• Varian, Hal R., 2014, Intermediate Microeconomics with Calculus, W.W. Norton, New York, NY.

However, these textbooks cannot in any way replace class attendance and/or study of the teaching material specifically designed and prepared for this course.

A single final grade is assigned for the entire 12-credit course. Assessment is carried out through a written exam. This exam requires both indicating whether certain given statements are true or false—clearly explaining the reasoning—and solving a number of exercises. The true/false statements are aimed at assessing theoretical knowledge, while the exercises test the ability to apply that knowledge to problem-solving. The total duration of the exam is 100 minutes. The final grade also take into account the weekly exercises assigned by the instructor.

written

The lecturer has a duty to ensure that the rules regarding the authenticity and originality of exam tests and papers are respected. Therefore, if there is suspicion of irregular conduct, an additional assessment may be conducted, which could differ from the original exam description.

• Scores in the 18-22 range will be awarded in the presence of:
- sufficient knowledge and understanding of the program;
- limited ability to interpret concepts and form independent judgments;
- sufficient communication skills, especially in relation to the use of specific language related to economic concepts.
• Scores in the 23-26 range will be awarded in the presence of:
- fair knowledge and understanding of the program;
- fair ability to interpret concepts and form independent judgments;
- sufficient communication skills, especially in relation to the use of specific language related to economic concepts.
• Scores in the 27-30 range will be awarded in the presence of:
- Good or excellent knowledge and understanding of the program;
- Good or excellent ability to interpret concepts and form independent judgments;
- Fully appropriate communication skills, especially in relation to the use of specific language related to economic concepts.
• Honors (30L) will be awarded in the presence of in-depth knowledge and understanding of the program, exceptional critical thinking skills, and effective communication abilities.

This course has been specifically designed to make the core concepts and theories of microeconomics accessible to students with only a basic mathematical background. To this end, the standard analytical tool of most microeconomics courses—calculus—is replaced by a framework in which goods are treated as indivisible units. This shifts the analysis from calculus and algebra to discrete mathematics, where the relevant objects, such as quantities, take distinct and separate values rather than varying continuously.

The purpose of this methodological choice is to simplify the analysis of fundamental concepts and models through the use of countable and visualizable structures, logical reasoning, and algorithms that require only minimal mathematical preparation. At the same time, particular care has been taken to ensure that this change in framework does not come at the expense of theoretical rigor. On the contrary, the course shows that concepts, theories, and models originally developed using calculus can also be taught with full conceptual precision through intuitive and visualizable structures such as tilings, counting procedures, and graph-based representations.

This approach should be distinguished from the more common non-calculus methods often adopted in standard textbooks. Those approaches typically replace calculus with elementary algebra and linear functions, representing curves as affine relationships characterized by intercepts and slopes. While this may reduce the reliance on differentiation, it usually does so only partially, since students are still required to solve optimization problems through first-order conditions and to handle systems of equations. By contrast, the discrete approach adopted in this course allows optimization results to be derived without calculus. Students need only basic arithmetic operations—addition, subtraction, multiplication—and a clear understanding of equality and inequality relations.

Other alternatives to calculus-based teaching in microeconomics rely more heavily on rhetorical or graph-centered exposition. These approaches are often appreciated in programs where students have limited mathematical preparation and where the emphasis is placed on qualitative rather than formal results. Their limitation, however, is that they tend to build on economic intuition without fully formalizing the assumptions and logical steps underlying the conclusions. As a result, students may acquire only a partial understanding of the internal and external validity of the results, and may lack the tools needed to question or critically assess the concepts and theories presented to them. By contrast, the approach adopted in this course preserves the rigor of formal reasoning while placing it within a more accessible framework, in which propositional and predicate logic provide the foundations for the analysis of economic concepts and their interrelations.

The central objective of this pedagogical approach is to foster students’ mathematical maturity by encouraging creative, step-by-step, and deductive reasoning, rather than rote memorization of formulas or mechanical procedures.