Department of Economics
New York University
DOUGLAS GALE
G31.1023
Microeconomic Theory I (2)
General equilibrium

Fall 2007

This part of the course presents a survey of the central results and techniques of the theory of general competitive equilibrium. The main reference for the course is Mas Colell, Whinston and Green, Microeconomic Theory, published by Oxford University Press in 1995. The textbook will be supplemented with lecture notes and other references. The assessment for the course will be based on attendance and homework assignments (20%) and a final examination (80%).

Lectures: Tuesday and Thursday 10:00 - 11:30 in KMEC 5-75
Instructor: Douglas Gale <douglas.gale@nyu.edu>      19 West 4th Street, 812
Office hours: Monday and Wednesday 11:00 - 12:00
TA: Ryan Booth   <rwb262@nyu.edu>   19 West 4th Street, 618
Office hours: Monday 4:30 - 6:30
Lab: Tuesday 3:30 - 5: 30 in KMEC 5-75
Final examination: Wednesday December 19

Outline

Review: Optimization theory

Lecture 0
Problem set 0
Solution to Question #1, Problem set 0

Classical theorems of welfare economics
  • Exchange economies
  • Competitive equilibrium
  • First theorem: efficiency of competitive equilibrium
  • Second theorem: decentralization of efficient allocations
  • Extensions
Reading: Mas Colell, Whinston, and Green, 16A-D

Lecture 1
Problem Set 1
Assignment due October 30: Question 1, Problem Set 1
Assignment due November 6: Question 8, Problem Set 1
Solutions to Questions 1, 5, and 8, Problem Set 1.

Uncertainty
  • Contingent commodities
  • Arrow securities and sequential trade
  • Arbitrage pricing
  • Option pricing: the binomial model
  • Incomplete asset markets

Reading: Mas Colell, Whinston, and Green, 19A-F

Lecture 2
Problem Set 2
Assignment due November 13: Question 1, Problem Set 2
Solutions to Questions 1, 2, 3, 4, from Problem Set 2

Assignment due November 27: Question 7, Problem Set 2

Economies with production
  • The classical welfare theorems for production economies
  • Linear production models
  • The 2x2 production model
  • Convexifying effect of large numbers
Reading: Mas Colell, Whinston, and Green, 5B-C, 5F, 16C-D, 17I

Lecture 3
Problem Set 3
Assignment due December 4: Question 5, Problem Set 3
Solution to Question 5, from Problem Set 3

Dynamic economies

  • Intertemporal efficiency
  • The representative consumer model
  • The overlapping generations model
  • Linear growth models

Reading: Mas Colell, Whinston, and Green, 20A-D, 20H

Lecture 4
Problem Set 4
Assignment due December 11: Question 1, Problem Set 4
Solution to Question 1, from Problem Set 4

Economies with transferable utility

  • Maximum surplus and cost-benefit analysis
  • Externalities
  • Imperfect competition
  • Groves-Clarke mechanisms
Reading: Mas Colell, Whinston, and Green,

Microfoundations for competitive equilibrium

  • Cournot-Shubik market games
  • Matching and bargaining games
Reading: Shapley and Shubik, "Trade Using One Commodity as a Means of Payment" JPE (1977)
Osborne and Rubinstein, Bargaining and Markets, Chapter 8, pp.156-166.

Lecture 5

Structure of equilibria

  • Existence
  • Local uniqueness and comparative statics
  • Regular economies, genericity
  • Comparative statics
Reading: Mas Colell, Whinston, and Green, 17A-F

Lecture 6

Final examination: KMEC 5-75, 9:30 - 11:30 AM
Examinations

Solution for final exam 2003
 Final exam 2004
Solution for final exam 2005
Final exam 2006
Final exam solution 2006
Final exam solution 2007