104A · Intermediate Microeconomics
Consumer and Producer Theory
Course Overview
EC104A covers the first half of intermediate microeconomics: consumer theory, producer theory, and the welfare properties of competitive markets. The course is calculus-based. By the end you will be able to derive a consumer’s demand from first principles, characterize a firm’s cost and supply behavior, find a competitive equilibrium, and measure the welfare consequences of market interventions.
We’ll follow this textbook: Hal Varian, Intermediate Microeconomics: A Modern Approach, 9th edition. I recommend you get a copy. In this class workbook, I indicate which chapter from Varian you should read for each class: you can do the reading either before or after class. Either way, it will help solidify your understanding if you find anything especially confusing.
Slides from the first day: Class 1: Introduction
Discovering Microeconomics
Microeconomics has been discovered many times. Ibn Khaldun, writing in fourteenth century North Africa, the anonymous authors of the ancient Chinese Guanzi, and Kautilya in the Indian Arthashastra each worked out how scarcity, supply, and demand govern prices, centuries apart and wholly unaware of one another. Marginal utility theory alone was discovered independently at least three times in the early 1870s, by Jevons in England, Menger in Austria, and Walras in Switzerland, none of whom knew that Gossen had published the same ideas in 1854. Eugen Slutsky derived the heart of consumer theory in 1915, and his paper went so unnoticed that Hicks and Allen re-derived it from scratch in 1934. This keeps happening because microeconomics needs only two things: some mathematics and careful thinking about trade and markets. You already have the mathematics. My goal is that by the end of this course, you will have done the thinking, and we can count you among the people who have re-discovered microeconomics.
So I won’t present the material to you in a big slide deck. I’ll teach the way Socrates taught, by asking questions that draw the ideas out of you, because an idea you’ve worked out for yourself is understood far more deeply than one you’ve merely been told. But for that to work, you have to be in the room. Come to class and come to lab; if you skip them, you won’t succeed here.
My deeper goal is to get you to think hard, and I should warn you that this will feel foreign. Most of what school rewards isn’t thinking; it’s “studenting”: getting the teacher to like you, getting along with your peers, gaming the system for grades, concealing your boredom, negotiating better deals on assignments, balancing the curricular against the extracurricular, and divining what will be on the test. Those technically qualify as skills, but they don’t have a lot to do with thinking hard about the content being taught.
In the age of AI, this is a bigger problem than ever before. Now, computers can do the thinking for us, and the early research is concerning: students who practice math with AI do worse once it’s taken away (Bastani et al., PNAS, 2025), and people who write with AI don’t engage their brains, they produce undistinctive work, and they barely remember what they write (Kosmyna et al., 2025). If we hand all of our hard problems to machines, both our confidence in our thinking and our ability to think begin to fade. So that’s why, in this class, we’ll practice thinking hard every day. As people’s thinking muscles around the world atrophy, I’m hoping ours will get a lot stronger over the next couple of months.
Course Goals
The subject of this course is consumer and producer theory, but what you stand to gain from it is broader: quantitative literacy, the ability to take a real situation, turn it into mathematics, work the mathematics, and bring the answer back to the world with its meaning intact. The six goals below are the pieces of that ability. Each has a basic, intermediate, and advanced level, and every class and lab is designed to move you to a particular level of one or more of them.
| Class | 1 | 2 | 3 | 4 | 5 | 6 |
|---|---|---|---|---|---|---|
| Class 1: Math Review
You play a betting game with cards and reconstruct a mystery sequence of graph transformations, then work through fractions, exponents, and logs. This rebuilds the algebra the course leans on (Goal 2, basic) and gets you reading lines and slopes off a plot (Goal 3, basic).
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B | B | ||||
| Lab 1: The Market
Eight students, five apartments, four allocation schemes, and a council that can't stop the subletting: you trace who ends up where and who ends up with the money. It is your first exercise in turning a situation into a model with fixed and chosen quantities (Goal 1, basic) and reading the outcome as a statement about efficiency (Goal 5, basic).
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B | B | ||||
| Class 2: Budget Constraint
You compare three island economies, referee a senator and an economist arguing over cash versus food vouchers, and turn three dials (income and two prices) to see what each can and cannot do to the budget line. You write and graph your first constraint (Goals 1 and 3, basic) and learn to read its slope as an opportunity cost (Goal 5, basic).
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B | B | B | |||
| Class 3: Preferences
You drain a poster collector's wallet by exploiting her circular preferences, draw taste maps like a cartographer draws contour lines, and find a map on which two hikers both win the same trade. Indifference maps become a picture you can read and draw (Goal 3, intermediate), and the money pump is your first taste of catching an inconsistent claim (Goal 6, basic).
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I | B | ||||
| Lab 2: Derivatives
You practice the four derivative rules, hunt for a line tangent to a parabola using each digit only once, and meet partial derivatives. The point is fluency: derivatives as slopes and rates of change, ready for marginal utility next week (Goal 2, intermediate).
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I | |||||
| Class 4: Utility
Three teaching assistants each propose a new grading formula, and you decide which ones secretly rank portfolios the same way as the professor; then you write utility functions for the four customers you mapped in Class 3 and plot level curves. You go from describing a taste to writing it as a formula (Goal 1, intermediate) and learn exactly what a utility number can and cannot claim (Goal 6, intermediate).
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I | I | ||||
| Class 5: Marginal Utility and MRS
You compute marginal utilities for three appetites, finish a proof that the slope of an indifference curve is the ratio of marginal utilities, and draw trade lines to decide whether Mika should accept her friends' offers. Partial derivatives become a working tool (Goal 2, intermediate) and the MRS becomes a rule for whether a trade is worth making (Goal 4, intermediate).
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I | I | ||||
| Lab 3: Practice with MRS
You send Priya (perfect substitutes) and Marco (perfect complements) to three trading posts and watch the Class 5 rule break, then rewrite it so it works for everyone. It is practice computing MRS on unfamiliar maps (Goal 2, intermediate) and sharpening the stopping condition into something general (Goal 4, intermediate).
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I | I | ||||
| Class 6: Choice
Two customers with $24 at the food truck: you show that the budget line is a trade line, find the bundle where MRS equals the price ratio, and then test a grandmother's rule that rent should always be half your income. This is your first full constrained optimization (Goal 2, advanced) and the stopping condition at the heart of consumer theory (Goal 4, intermediate).
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A | I | ||||
| Class 7: Demand
You derive demand curves for three tastes and discover they are not all smooth downward lines, meet a shopper who buys less of both goods after a raise, and pack an 8-day trek in which a price rise makes noodles more popular. Demand becomes a curve you derive rather than assume (Goal 3, advanced) and you predict how purchases respond to income and price changes, including the strange cases (Goal 5, intermediate).
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A | I | ||||
| Lab 4: Practice with Choice
Two more customers arrive at the truck with perfect-substitute and perfect-complement tastes, and then Sam, who refuses to mix ice cream and olives, breaks the tangency rule entirely. You set up and solve the full choice problem from scratch (Goals 1 and 2, advanced) and learn when the picture, not the formula, gives the right answer.
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A | A | ||||
| Class 8: Slutsky Equation
A manager gives Nadia a raise to exactly cover a coffee price hike and is baffled that she still drinks less; a senator promises a gas tax with rebates that hurts no one. You split each price change into a substitution effect and an income effect (Goal 4, advanced) and use the pieces to predict what the raise and the rebate actually do (Goal 5, intermediate).
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| Class 9: Consumer's Surplus
You find the largest gate fee a lemonade lover would grudgingly pay, then act as expert witness in a lawsuit over a quadrupled water price, computing the two competing measures of damages. Surplus becomes a dollar measure of how much a price change helps or hurts someone (Goal 5, advanced), and the dueling experts show how two correct calculations can still disagree (Goal 6, intermediate).
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| Lab 5: Slutsky Equation Practice
Espresso doubles in price and two café purists insist only one effect applies to them. You run the Slutsky pivot for each and show exactly which effect vanishes and why (Goal 4, advanced).
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A | |||||
| Class 10: Market Demand
An intern adds two demand equations and gets a formula that works at $2 but fails at $5; two theatre advisers feud over whether to raise or cut prices; a bumper wheat harvest ruins the farmers. You aggregate individual demands correctly (Goal 1, intermediate), read kinks and elasticities off the resulting curve (Goal 3, intermediate), and settle each argument with a calculation (Goal 6, intermediate).
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| Class 11: Equilibrium
An analyst refuses to believe price and quantity can both move the way her data says; food truckers swear they will pass a tax entirely to customers; landlords on a fixed-supply island make the same promise; and a scalper flips a price-capped concert ticket while the mayor calls him a parasite. You solve supply and demand systems, with and without taxes (Goal 2, advanced), and judge the taxes and the ticket lottery by who really pays, who gains, and which trades are destroyed (Goal 5, advanced).
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A | A | ||||
| Lab 6: Practice with Equilibrium
Practice solving for equilibrium under shifts and taxes, and reading the results for incidence (Goal 2, advanced; Goal 5, intermediate).
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| Class 12: Exchange
Two castaways with figs and fish: you draw the Edgeworth box, find the trades that help both, run Bo's amateur auction until the markets clear, and then design endowments from which free trade delivers the governor's target. You set up a whole two-person economy from a story (Goal 1, advanced) and use equal MRS across people as the test of efficiency (Goal 4, advanced).
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A | A | ||||
| Class 13: Welfare
A film club chair rigs the vote order, an executor must split an inheritance 'for the good of society,' a city council votes by philosophy, and twins argue about whether equal means fair. You measure outcomes by Pareto efficiency and by utilitarian and Rawlsian standards (Goal 5, advanced), and you build the counterexamples that show what each standard misses (Goal 6, advanced).
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A | A | ||||
| Lab 7: Practice with Welfare
Practice evaluating allocations by efficiency, envy, and social welfare criteria (Goal 5, advanced).
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| Class 14: Technology
You play detective with three smoothie stalls' logs to recover their production functions, defend a 'lazy' fifth cook, test three startups' claim that doubling inputs doubles output, and correct a CEO's memo about robots replacing workers. You write a technology as a formula (Goal 1, intermediate), read isoquants (Goal 3, intermediate), and meet marginal product as a rate of change (Goal 4, basic).
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| Lab 8: Practice with Technology
Practice recovering and classifying production functions and computing marginal and average products (Goal 1, intermediate; Goal 4, basic).
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I | B | ||||
| Class 15: Profit Maximization
A baker celebrates a profit that an economist says isn't one, a foreman hires anyone who adds crates, and a founder pitches scaling a $50-a-week lemonade stand a millionfold. You solve the firm's hiring problem (Goal 2, advanced) using the rule that the value of the marginal product equals the wage (Goal 4, intermediate), and you find the assumption that makes the lemonade pitch collapse (Goal 6, advanced).
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| Class 16: Cost Minimization
A CFO wants tidy equal inputs, a baker is stuck with her aunt's oven, and an auditor catches a plant manager without ever seeing his production function. You set up the cost minimization problem in the short and long run (Goal 1, advanced), solve it with isoquants and isocosts (Goal 2, advanced), and use the tangency of TRS and input prices as the test (Goal 4, intermediate).
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| Class 17: Cost Curves
You rebuild a coffee-stained ledger from its marginal cost column, decide when a rusty second truck earns its keep, choose among oven sizes, and reconstruct a drone bakery's costs from a lease and a flight log. Average and marginal cost curves become pictures you can read and draw (Goal 3, intermediate), and you predict how a firm should split output and size its plant (Goal 5, intermediate).
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| Class 18: Firm Supply
Two advisers argue about the fattest margin versus one more delivery, an accountant wants to ground the fleet for winter, and the city offers compensation for a day of lost flying. You derive the firm's supply curve from marginal cost (Goal 3, advanced), apply price equals marginal cost with its caveats (Goal 4, intermediate), and predict when a firm should keep operating at a loss (Goal 5, intermediate).
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| Lab 9: Practice with Cost Curves
Practice building cost curves from partial information and locating the crossings that matter (Goal 3, intermediate; Goal 4, intermediate).
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| Class 19: Industry Supply
Copycats lease hangars until profits vanish, the city grandfathers four licenses that become valuable assets, and a demand boom plays out in two acts. You build the industry supply curve and its long run version (Goal 3, advanced), evaluate the licensing policy by who gains and who loses (Goal 5, advanced), and reconcile 'zero profits' with a world of lumpy firms (Goal 6, intermediate).
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A | A | I |