Postgraduate

Modules

Modules

NBS8251 : Microeconomic Theory

Semesters
Semester 1 Credit Value: 10
ECTS Credits: 5.0

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.

Teaching Methods

Teaching Activities
Category Activity Number Length Student Hours Comment
Scheduled Learning And Teaching ActivitiesLecture72:0014:00N/A
Guided Independent StudyAssessment preparation and completion130:0030:00N/A
Guided Independent StudyDirected research and reading124:0024:00N/A
Scheduled Learning And Teaching ActivitiesSmall group teaching41:004:00N/A
Guided Independent StudyIndependent study128:0028:00N/A
Total100:00
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 Methods

The format of resits will be determined by the Board of Examiners

Exams
Description Length Semester When Set Percentage Comment
Written Examination901A100N/A
Formative Assessments
Description Semester When Set Comment
Prob solv exercises1MSeminar questions provided
Assessment Rationale And Relationship

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

Reading Lists

Timetable