Modern economics is a way of thinking that provides important insights into human behaviour and how the world works. The emphasis in Microeconomics 3 is on deepening students' understanding of the basic principles of microeconomics and learning how to use these principles to analyse real world problems and policy issues. Economic analysis provides a powerful tool for analysing public policy from both a positive (i.e. predictive) and normative (i.e. evaluative) perspective and focuses attention on how policies can be improved.

In the first part of the course we will se out how markets work (and don't work), using general equilibrium models to illustrate the fundamental theorems of welfare economics. After an overview of market failure, we will look at distribution and redistribution: how supply and demand determine the distribution of income in a market economy, using the effects of the mining boom as an example, and the rationale for, and effects of, government redistribution of income. We review the tools of welfare economics, used to evaluate economic changes, including social welfare functions, the efficiency criterion, the basic postulates of welfare economics and the theory of the second best, revising and extending material taught in Economics 2.

It is important to compare the performance of actual markets with the performance of actual government. Government interventions can have costs as well as benefits. We examine models of how the political process works (and doesn't work) and the effects of taxes.

The second part of the course applies these tools to analyse a number of topical public policy issues, including infrastructure pricing and provision, carbon pricing and road charging as well as cost benefit analysis and monopoly pricing (applied to a number of every day pricing puzzles).

On satisfying the requirements for this course, students should have the knowledge and skills to:
• Think for themselves like economists, or at least understand how economists think.
• Recognise the economic issues in a problem and apply the appropriate tools to analyse it.
• Understand the economic tools taught in class and be able to apply them to analyse real world problems and policy issues.

A three-hour end-of-semester examination and two in-class tests.

Two/Three lectures and one tutorial per week throughout the semester.

ECON2101/2111 Microeconomics 2 (P or H).

Please refer to Course Website