Welfare Economics

This is an advanced course in Microeconomic Theory, therefore a good knowledge of consumer and production theory is required, as well as an understanding of various market forms, including perfect and imperfect competition. Students are expected to have completed the courses Microeconomics (9115501) and Strategy and markets (9105801), or equivalent courses based on textbooks such as:

• Perloff: Microeconomics. Theory and applications with calculus. Latest edition. Pearson Addison Wesley. (Used in Microeconomics)
• Dixit, S. Skeath, and D. Reiley: Games of Strategy. Latest edition. Norton. (Used in Strategy and Markets).
• Hal Varian: Intermediate Microeconomics. Latest edition. Norton. (Used in Strategy and Markets).

A further requirement is a working knowledge of mathematics (calculus, constrained optimization, game theory and logic).

In this course we shall explore the "goodness" or "badness" of different economic arrangements, with an emphasis on competitive markets. The overall aim of the course, therefore, is to provide students with an understanding of the connection between market competition and (Pareto) efficiency. After completing this course, students should therefore be able to provide rigorous answers to all of the following fundamental questions:  

1. Does a competitive economic system produce good results?
2. Is there a connection between market competition and efficiency?
3. What are the implications of externalities, public goods or uncertainty in the allocation of economic resources?
4. What should be done to establish an efficient outcome when there is uncertainty, externalities or public goods on the scene?

1. Individual preferences and the measure of welfare.
2. Barter exchange, Pareto efficiency and the core.
3. Market exchange and the competitive equilibrium.
4. Fundamental theorems of welfare economics.
5. Uncertainty in exchange.
6. Externalities in exchange.
7. Public goods.

• understand the links between perfect competition and the efficiency of markets (fundamental theorems of welfare economics).
• be aware of the assumptions under which competitive markets produce efficient outcomes.
• understand the main instances in which competitive markets fail to allocate resources efficiently.
• be able to describe alternative mechanisms aimed at improving the efficiency of competitive markets.
  
  

• be able to communicate the results of economic analysis in a clear and rigorous way.
• be able to use mathematical methods in order to understand and produce logical reasonings.
• be capable of articulating conceptual economic arguments using mathematical methods.
• understand the role of microeconomic assumptions and the references to standard microeconomic results.
  
  

• be able to define central concepts and apply them to the analysis of actual economic problems in the context of welfare economic theory.
• be able to communicate research questions, solution methods and answers in a clear-cut manner.
  
  

Scheduled classes:

2+2 weekly lectures for 15 weeks. 

2 weekly exercise classes for 14 weeks

Workload:

Lectures - 60 hours

Exercise classes - 28 hours

Individual preparation work for lectures:

• Reading course material - 60 hours 
• Solving proposed exercises - 74 hours

Final exam - 48 hours
Total - 270 hours

This corresponds to an average weekly workload of 13 hours during the semester, including the exam.

NOTE - This course is identical with the former course 9102201, B540016101 and B540030101 Velfærdsøkonomi og skattepolitik.