Chapter 1
3.a) Interdependence is the principle that there are further consequences in an
economic decision that is more than the immediate object of the decision. On the
other hand, opportunity cost is the cost of the next best alternative forgone.
Becau
Stats
Exam 2 Formula Sheet
Cichello
Covariance, Correlation and Conditional Expectations and Variance of 2 discrete rvs
Cov(X,Y) = E[(X-x)(Y-y)] =
Cov( X , Y )
y x Pr( xi , yi ) * ( xi x )( yi y )
x y
Var ( y | x) P ( y | x)( y E[ y | x ]) 2
E[ y | x] P
Ec 131
Midterm 1 Solutions
Part I. (20-25 min) Multiple Choice Questions (15 questions, 2 pts each). Circle only one
answer per question.
1. Which of the following statements is normative?
(a) If income increases, sales of luxury goods will fall.
(b) Scie
Econ 131
Assignment 1 Solutions
1. (8 pts) Discuss the efficiency and equity implications of each of the following policies. How
would you go about balancing the concerns of equity and efficiency in these areas?
a. The government pays the full tuition for
Ec 131
Problem Set 2: Elasticity
(due Oct 16 in class)
1. (10pts) (When answering this question please state which elasticity formulas you are
using and briefly explain how you obtain your results.) Suppose that we have two goods
A and B. What is the sign
Econ 131
Assignment 1
(Due Oct 20 in class)
1. (8 pts) Discuss the efficiency and equity implications of each of the following policies. How
would you go about balancing the concerns of equity and efficiency in these areas?
a. The government pays the full
Ec 131
Solutions to Problem Set 2: Elasticity
1. (10pts) (When answering this question please state which elasticity formulas you are
using and briefly explain how you obtain your results.) Suppose that we have two goods
A and B. What is the sign of the c
Lecture 10Macroeconomic Questions
Macroeconomics is the study of economic
aggregates and economy-wide phenomena like
the annual growth rate of a countrys total
economic output or the annual percentage
increase in the total cost of living.
Lecture 10
Lectu
Lecture 8Market Structures
Perfect
Competition
Monopolistic
Competition
Lecture 8
Oligopoly
Monopoly
Lecture 8New Market Structure. Oligopoly
Oligopoly:
A form of market structure characterized by a few dominant firms.
Significant barriers to entry and
Lecture 7Game Theory and Strategic Play
Game Theory
The study of strategic interactions
Lecture 7
Lecture 7Simultaneous Move Games
The Prisoners Dilemma Game
What happened:
You and your partner in crime, Josie, got
busted for robbery, caught in the act. T
Lecture 12Causes of Prosperity
What do you think are the causes of prosperity?
Lecture 12
Lecture 12Proximate Versus Fundamental Causes of Prosperity
Fundamental and Proximate Causes of Prosperity
Lecture 12
Lecture 12Proximate Versus Fundamental Causes o
Lecture 13Money
Money is an asset that people use to make and
receive payments when buying and selling goods
and services.
Lecture 13
Lecture 13Money
Money serves three functions in a modern
economy:
1. It is a medium of exchange.
2. It is a store of valu
Lecture 11Real vs. Nominal
Nominal GDP
The total value of production using current
market prices to determine the value of each
unit that is produced.
Real GDP
The total value of production using market
prices from a specific base year to determine
the va
Lecture 4Supply Curve
Where does the supply curve come
from?
While demand is the outcome of the
consumer maximizing his/her utility
Supply is the outcome of the producer
maximizing its profits.
Lecture 4
Lecture 4The Sellers Problem
Goal of the Seller: Ma
Lecture 9Recall from Lecture 1: Broad Fields of Economics
Microeconomics
The study of individuals,
firms, government.
?
Example of Policy
Work:
Pollution regulation,
Insurance/Banking
regulation,
Traffic (tolls)
Individuals response to
incentives,
Indiv
Lecture 5From the Sellers Problem to the Supply Curve
Shutdown
Q#1
How
to
Produ
ce?
Production
Function
Inputs
Output
Marginal Cost
Q#2
How
much
does it
cost?
t
or
Cost
Sh un Fixed
y
R nlDo not vary with the
O
Variable Cost
level of production. At
least f
Lecture 3Last time we talked about
Lecture 3We discussed where the demand curve comes from
Lecture 3
Lecture 3Consumer Surplus
Consumer Surplus
The difference between what you are
willing to pay and what you have to
pay (the market price)
Lecture 3
Lectur
Static games
Lesson 2: Solution Concepts
Normal form games
Static or simultaneous game: Each player takes their
action without knowing the choice the others make.
Elements of the simultaneous game:
a) Players set: N = cfw_1, . . . , n
b) Strategies (act
Dynamic Games
5. Negotiations
Negotiations
Well study negotiation processes as a kind of DG. For
instance:
Price negotiation between sellers and buyers.
Wage negotiation between unions and firms.
A treaty negotiation between countries.
These processes
STATIC GAMES: LECTURE 4
CONTINUOUS VARIABLES AND
ECONOMIC APPLICATIONS
CONTINUOUS VARIABLES
In many games, pure strategies that players can choose are not
only 2, 3 or any other number but sometimes there are endless
possibilities
Consider two oligopolist
Repeated Games
2. Games repeated
infinitely many times
We know that
In a finitely repeated game with just one NE in
the stage game, by backward induction we
observe:
Period T: there are no incentives to cooperate.
No future losses to worry about .
Perio
Dynamic Games
1. Dynamic Games with Perfect
Information
Dynamic Games
Games in which a player must make a
decission after knowing (part of) the past play,
in particular, what some other player did in
the past.
Mathematical model of the game: extensive
f
Static games
3. Mixed strategies: when the only
good strategy is not to have one
The need of mixed strategies
We have seen games with no Nash
equilibrium in pure strategies (e.g., Matching
pennies)
It is easy to see that in this game the best
strategy i
Repeated games
1. Finitely repeated games
1
Finitely repeated games
A finitely repeated games is a dynamic game in
which a simultaneous game (the stage game) is
played finitely many times, and the result of each
stage is observed before the next is playe
Bayesian Games
2. Economic applications
Economic applications
Auctions with asymmetric information about valuations.
1.
2.
First Price and Second Price Auctions.
Well find BNE in both types of auctions. To facilitate the analysis
we will focus on equilib
Bayesian games
1. Types, Beliefs and
Bayesian Equilibrium
Recall: static game with
complete information
Players
Strategies (actions)
Payoffs or preferences for each strategy
combination
All of the above is common knowledge
among the players.
The Bayes
Static or Simultaneous Games
T.1. Normal Form.
The elements of a game
Simultaneous games
Each player chooses an action without
knowing what the others choose.
The players move
simultaneously
Three elements:
Players
Possible strategies
Payoffs
2
Simulta
The Economics of
Banking and Insurance
ADEC735001
Jose Fillat
[email protected]
Banking
Role of Financial Intermediaries (today)
Radiography of a banks balance sheet
Banking theories
Liquidity insurance, asymmetric information, and
competition (industrial
A bank's balance sheet and
income statement
Week 2
Bank's balance sheet
Like any other firm's balance sheet
Kind of
ASSETS = LIABILITIES + CAPITAL
CAPITAL is on the liabilities side of a bank's balance sheet, not in the
assets
CAPITAL accomplishes sev
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