Module Catalogue 2024/25

Pre Requisite Comment

N/A

Co Requisite Comment

None

Aims

To familiarise students with the key concepts of microeconomics.
To develop students' problem solving skills using economic theory.
To enable students to understand better how economic theory can be used to understand problems in finance.

At the end of the module students should understand the principle of utility maximisation; they should be able to solve utility maximising problems in a wide variety of contexts, notably involving saving and risk bearing.

Outline Of Syllabus

1. Preferences and utility: the preference relation, the axioms of consumer preferences, marginal and cardinal utility, the marginal rate of substitution.
2. Choice and demand: the budget constraint, the consumer's utility maximisation problem, the income expansion path, the demand function.
3. General properties of the demand function: invariance with respect to monotonic transformations of the utility function, homogeneity in prices and income, income and substitution effects, the Slutzky equation.
4. Labour supply: the choice between consumption and leisure, endowments and the budget constraint, utility maximisation, the effects of a change in the wage rate, the labour supply curve, overtime payments, income taxation and the supply of labour.
5. Inter-temporal choice, borrowing and lending: the inter-temporal budget constraint, present and future value, the optimal lifetime consumption plan, the effects of a change in the interest rate, providing for pensions.
6. Expected utility analysis: risk versus uncertainty, expected value, expected utility theory, the utility of wealth function, fair prospects, risk preferences, certainty equivalence and the risk premium, the purchase of insurance, risk aversion and the shape of the indifference map.
7. Risk aversion, risk bearing and the optimal insurance decision: the budget constraint with insurance, the effect of a change in the insurance premium, the optimal purchase of insurance, the question of full insurance.

Intended Knowledge Outcomes

To develop an understanding of the major principles and theories of modern microeconomics
To develop an appreciation of why an understanding of microeconomic theory is important in understanding problems in finance
To be able to apply economic reasoning to key problems in finance

Intended Skill Outcomes

To develop analytical and problem solving skills in the fields of economics and finance
To strengthen students' general ability in logical reasoning
To enhance and strengthen students' ability to apply mathematical reasoning to problems in economics and finance

Teaching Rationale And Relationship

• Lectures provide the basic structure of the methods and theories that are introduced and an overview of the current issues.

• Seminars provide an opportunity to enhance understanding of the theoretical aspects of the module.

Assessment Rationale And Relationship

Written exams test the understanding of microeconomic principles, and the logical thinking that this requires.

General Notes

N/A