EC411 Microeconomics

This is a core module for MSc F&E, and it covers standard micro theory - consumer, producer, welfare, perfect competition, monopoly, oligopoly, product differentiation, game theory applications, signalling, bargaining and auctions. The structure of the exam is very much applied in nature, and questions "look" rather easy. But they can be extremely tricky, e.g. you don't see nice functions like CES or Cobb-Douglas. More often than not, you will have to solve for corner solutions rather than interior ones.

Sat for the paper this afternoon. I thought it was relatively harder compared to past years, but many people thought otherwise. Most of my classmates have an Econ background, so I guess it's easier for them (I didn't major in Econ). Besides, this is also a core module for the MSc Econ programme in arguably the most prestigious economics school outside of US (I see Oxbridgers shaking their heads in denial), so we have some of the best Econ students around (Vinayak calls them creme de la creme, but as in any programme, you have duds as well). Anyway, I was a little disoriented in a room filled with weirdos, and I skipped the game theory questions which requires more brain energy. In other words, I'm an airhead. I'm not sure if I chose the right options in part B of the paper. Not confident of a distinction grade for this one.

Oh well, 1 down, 4 to go.

Game theory

A simple game-theoretic model can provide insights to a problem. It is another tool used in the analysis of the interaction of players. Everyday life poses game theory problems, e.g. firms deciding whether to enter a particular industry, how companies set prices in view of the actions of competitors, how one responds to a given incentive or disincentive, etc.

My microeconomics exam is on this Friday. I have never liked this subject, and having lecturers like mine didn't further help the cause. Anyway, in preparation for the paper, I was forced to read up and found to my liking, the simple applications of game theory (though Nash equilibrium is an easy concept, the solutions can sometimes be a little illogical at first glance).

A simple problem:
Suppose there are 2 players (A and B) bargaining over a cake of size 1 in 2 periods. There is a common discount factor, d (if you have 1 in period 2, that means it is worth d in period 1).
In period 1, player A proposes a share x for himself (and hence 1-x for player B). If B accepts, the game ends, otherwise we go to period 2.
In period 2, B proposes a share y for himself. The game ends after period 2.
What are the optimal responses for both players?

ps. You should watch "A Beautiful Mind" if you haven't already done so. It's one of my all-time favourite films.