ECON5001 · Microeconomic Theory
The Complete Exam Bible · S2 2026Microeconomic Theory
ECON5001 Microeconomic Theory is the University of Sydney's postgraduate microeconomics unit (co-coded with ECON5040), taking you from the foundations of consumer choice through to the frontier of market design. The first half builds the neoclassical core — preferences and utility, demand and the Slutsky decomposition, exchange and the two welfare theorems, choice under uncertainty, and production and costs. The second half turns strategic: monopoly and price discrimination, game theory and Nash equilibrium, oligopoly (Cournot, Stackelberg, Bertrand), and the market-design topics of stable matching and auctions. The exam does not reward recalling definitions — it rewards solving. Every chapter has one canonical model, and you earn marks by setting it up cleanly (objective, first-order or tangency condition, constraint) and grinding the algebra under time pressure. The strategic back half — Nash equilibria, reaction-function algebra, deferred acceptance and auction strategy — is where marks are most often won or lost because it is the most algorithmic and the least textbook-linear.
What ECON5001 covers
ECON5001 runs in two halves — Phan builds the neoclassical core (consumer choice through production and welfare) and Kesten pivots to strategic interaction (game theory, oligopoly, matching and auctions) — and these 11 chapters map that teaching order, each anchored by one canonical model you must set up and solve.
How ECON5001 is assessed
| Component | Weight | Format |
|---|---|---|
| 4 Canvas quizzes | 10% total | Online Canvas MCQ, 15 questions each; no late or replacement submission |
| Mid-semester exam | subject to confirmation | In-semester, Week 7; details to be confirmed closer to the date |
| Final exam | subject to confirmation | During the formal exam period; practice exams provided |
| Mid-sem / final weight split | subject to confirmation | The remaining ~90% split between mid-semester and final exam is not stated in the available course materials — confirm via the official unit outline |
Monopoly: price, markup and deadweight loss
- +2Marginal revenue has twice the slope of linear inverse demand: TR = (90 - 3Q)Q, so MR = 90 - 6Q.
- +3Set MR = MC: 90 - 6Q = 18, so Q_m = 12. Read the price off the demand curve: P_m = 90 - 3(12) = 54 (always above MC).
- +2Lerner index = (P - MC)/P = (54 - 18)/54 = 0.667 (the markup equals minus the inverse elasticity, so the firm operates on the elastic part of demand). Profit = (P_m - MC)Q_m = (54 - 18)(12) = 432.
- +3Competitive benchmark sets P = MC = 18: 18 = 90 - 3Q gives Q_c = 24. The deadweight loss is the welfare triangle over the lost units: DWL = 1/2 (P_m - MC)(Q_c - Q_m) = 1/2 (54 - 18)(24 - 12) = 216.
Key terms
- Marginal rate of substitution (MRS)
- The slope of an indifference curve: the rate at which a consumer will just trade good 2 for good 1 while staying indifferent. MRS = MU1/MU2; at an interior optimum it equals the price ratio p1/p2.
- Tangency condition
- The interior optimal-choice rule, MRS = p1/p2 (equivalently MU1/p1 = MU2/p2, equal 'bang per buck'). It fails for perfect substitutes, perfect complements and concave preferences, where the optimum is a corner.
- Slutsky decomposition
- Splitting the effect of a price change into a substitution effect (always opposite to the price change) and an income effect (sign depends on normal vs inferior). A Giffen good is an inferior good whose income effect outweighs the substitution effect.
- Pareto efficiency
- An allocation from which no one can be made better off without making someone worse off. In an exchange economy it requires equal marginal rates of substitution, MRS_A = MRS_B; the contract curve is the locus of all such allocations.
- Walrasian (competitive) equilibrium
- Prices at which every consumer optimises as a price-taker and all markets clear. The First Welfare Theorem says it is Pareto-efficient; the Second says any efficient allocation can be reached as one after lump-sum redistribution of endowments.
- Expected utility (von Neumann-Morgenstern)
- Rational agents maximise the probability-weighted utility of outcomes, EU = sum p_i u(x_i), not expected monetary value. Concave u means risk aversion, so the certainty equivalent lies below expected wealth and the gap is the risk premium.
- Cost minimisation & MC/AC curves
- Minimising input cost subject to an output target gives TRS = -w1/w2 and the cost function c(w,y). Marginal cost cuts average variable cost and average total cost from below at their minimum points.
- Lerner index (markup)
- A monopolist's market power: (P - MC)/P = -1/elasticity. The more inelastic demand is, the larger the markup. Because marginal revenue must be positive, a monopolist always produces on the elastic part of demand.
- Nash equilibrium
- A strategy profile in which every player best-responds to the others, so no one can gain by a unilateral deviation. Found by best-response (underlining) sweeps, iterated elimination of dominated strategies, or intersecting reaction functions.
- Subgame-perfect equilibrium
- A refinement for dynamic games: a strategy profile that is a Nash equilibrium in every subgame, found by backward induction. It rules out non-credible threats that ordinary Nash equilibrium would allow.
- Cournot / Stackelberg / Bertrand
- The three oligopoly benchmarks: Cournot (simultaneous quantity choice, equilibrium at the intersection of reaction functions), Stackelberg (a quantity leader exploits the follower's reaction function for a first-mover advantage), and Bertrand (price competition, which drives homogeneous-goods prices to marginal cost).
- Deferred acceptance & stable matching
- The Gale-Shapley algorithm in which proposers propose and receivers tentatively hold their best offer. It always yields a stable matching (no blocking pair), is optimal for the proposing side, and is strategy-proof only for the proposers.
ECON5001 FAQ
How is ECON5001 assessed?
Four online Canvas quizzes worth 10% in total (15 MCQ each, with no late or replacement submissions), plus a mid-semester exam in Week 7 and a final exam in the formal exam period. The split of the remaining roughly 90% between the mid-semester and final is not fixed in the available course materials, so confirm the exact weighting and any hurdle requirements in your official unit outline.
Is there a final exam?
Yes. There is a final exam during the formal University of Sydney exam period, and practice exams are provided. There is also a mid-semester exam in Week 7. The precise weights are listed as 'subject to confirmation' in the source, so check the current unit outline.
What is the hardest part of the course?
Most students find the strategic second half hardest — game theory (Nash and subgame-perfect equilibria), oligopoly reaction-function algebra (Cournot, Stackelberg, Bertrand), and the market-design topics of deferred acceptance and auction strategy. This content is the most algorithmic and is taught largely from slides rather than following one textbook chapter, so it rewards repeated problem practice.
How should I prepare for the exam?
Practise solving, not memorising. Each chapter has one canonical model; drill the same routine every time — write the objective, apply the first-order or tangency condition, impose the constraint, solve, and verify. Work the problem sets and practice finals against the clock, and make sure you can set up utility maximisation, Edgeworth-box efficiency, cost curves, monopoly MR=MC with deadweight loss, Cournot/Stackelberg/Bertrand, Nash equilibria, deferred acceptance and auction bidding from a blank page.
Do I need strong maths for this course?
Yes — the unit is calculus-based. You will use partial derivatives for marginal utility and marginal product, Lagrangian or tangency conditions for optimisation, elasticity calculus, the Slutsky decomposition, MR=MC and reaction-function algebra. None of it is advanced, but you must be fluent and fast, because the exam is a speed exercise once you know the method.
Which textbook does it follow?
Lectures map chapter-by-chapter primarily to Hal Varian's Intermediate Microeconomics: A Modern Approach (9th ed.), supplemented by Banerjee's A Tool-Building Approach and Pindyck & Rubinfeld's Microeconomics. The official note is that only material covered in lectures and tutorials is assessable, so treat the textbook as scaffolding and the lecture/tutorial worked problems as the assessable object.
Is this guide official or affiliated with the University of Sydney?
No. This is an independent AskSia study guide built to help you revise ECON5001. It is not produced, endorsed by, or affiliated with the University of Sydney. Always confirm assessment weights, dates and policies against your official unit outline and Canvas site.
How to study for the exam
Treat ECON5001 as a collection of canonical models rather than a list of facts, because the exam rewards solving under time pressure. For each of the 11 chapters, identify the one model that defines it and rehearse a single fixed routine — state the objective, write the first-order or tangency condition, impose the constraint, solve, then verify your answer (check signs, corners, and whether you read price off demand rather than MR). Front-load the neoclassical core (consumer choice, exchange, costs) early in semester so the Canvas quizzes are easy marks, then invest your heaviest practice in the strategic back half (game theory, Cournot/Stackelberg/Bertrand, matching and auctions), which is the most algorithmic and where exam marks are most often won or lost. Work the provided problem sets and practice finals against the clock, redo each example with the source's own numbers after reading the method, and keep a running list of the common traps — confusing PS with profit, the slope of MR, profit vs quantity taxes, checking blocking pairs for stability — so they stop costing you marks.
