## Description

Microeconomics studies the choices made by individuals under conditions of scarcity of resources and time and the interaction between different decision makers. Scarcity forces economic actors to choose one opportunity among many, which leads to the opportunity costs. Opportunity cost is the value of the best forgone alternative. For example, by deciding to enroll to a graduate programme, you forgo the opportunity to hold a job. The salary you might have earned on such a job is the opportunity cost of your education, which should be counted together with the cost of textbooks and tuition costs to give the total cost of your education. In choosing the amounts of goods and services that individuals consume, a crucial question is how much of a particular good should a financially constrained individual consume. The principle of marginalism states that the goods should be consumed in such quantities as to leave individual indifferent between spending her last dollar on any of the goods. Indeed, if she prefers to spend her last dollar on apples, she would be better off by buying more apples.

The principles of marginalism and opportunity costs are the central tenets of the economic method of thinking. Formally, they are captured by the following assumption of rational behavior: individuals seek to maximize a well-defined objective function subject to some constraints. For example, consumers form their demands by maximizing utility, subject to budget constraints, firms maximize profits, a mechanism designer maximizes some private or public objective subject to the incentive compatibility and individual rationality constraints, etc.

Some recent developments called into question the very utility maximization paradigm and drove a wedge between preferences and utilities. Such models are known as bounded rationality models. It is not a place to discuss these models in this course. It suffices to say that most techniques you will learn in this course will still be relevant in studying bounded rationality models. Moreover, since such models are analytically less tractable than the standard models, knowledge of numerical tools, such as Excel, becomes even more important.

This book brings together a comprehensive and rigorous presentation of microeconomic theory suitable for an advanced undergraduate course, simple Excel-based numerical tools suitable for an analysis of typicaloptimization problems are encountered in the course.

Due to the importance of constraint optimization technique, I devote the first part of the book to its formal exposition. I also introduce the reader to a standard Excel tool: the Solver, which is a convenient tool to analyze optimization problems. The rest of the necessary mathematics is delegated to an Appendix. The book covers the following economic topics: consumer theory, producer theory, general equilibrium, game theory, basics of industrial organization and markets, and economics of information.

The first three of those topics study situation, where individuals do not need to explicitly take into account behavior of other economic actors, i.e., they act non-strategically. The actions of different economic actors are mediated via prices. We call such interactions market interactions. However, most situations of economic interest are dominated by interaction of many individuals. Such interactions, known as strategic interactions, are dominated by a relatively small number of participants (for example, firms on an oligopolistic market). In such situations, it becomes crucial for market participants to be able to predict behavior of their opponents and respond in an appropriate way. Such situations are the subject of study of game theory. Problems in both general equilibrium and game theory lead to systems of simultaneous equations, which can also be analyzed using Solver. The sections, marked with * are more technical than the rest of the text and can be omitted by the instructor without damage to the rest of the course.