This is an economic theory course.
Were going to study less what happens in the real world
and more models of what we think will happen in the real
That doesnt mean its disconnected from reality. Here,
models are dev
EXCHANGEGENERAL EQUILIBRIUMEDGEWORTH BOX
1 ExchangeGeneral equilibriumEdgeworth box
Competitive markets people are price-takers
Two consumers, two goods for ease of drawing pictures mostly
Pure exchange cant make anything, only trade whats endowed
INCOME AND SUBSTITUTION EFFECTS
1 Income and substitution eects
We can take the ideas that demand for goods responds to prices and income,
and use it to see more about how choices are made when just a price changes.
Instead of my usual coee and M&Ms I
NORMAL AND INFERIOR, ORDINARY AND GIFFEN
1 Normal and inferior, ordinary and Gien
Something which can show up in demand is how some goods may respond
dierently than others to changes in income or prices.
Normal good A normal good is a good where a per
CONVEX AND STRICTLY CONVEX PREFERENCES
For the stu on quantity tax versus lump-sum tax, see the Varian textbook, page 87 in the 8th edition.
1 Convex and strictly convex preferences
Theres a reason we care about convex and/or strictly convex preferenc
MRS AND PRICE RATIO OPTIMIZATION
1 MRS and price ratio optimization
1.1 Caveat on simple budget sets
A lot of what Ill be talking about with choice, and particularly with demand
will be assuming a simple budget setthat is, a triangular budget set full
QUICK REVIEW ON UTILITY AND PREFERENCES
1 Quick review on utility and preferences
One of the reasons to use utility functions is to allow us to talk more clearly
about certain kinds of preferences. I got a question at the end of class what
1 Budget constraints
Occasionally, Ill talk about
without the negative as the price ratio.
1.1 Simple budget setshifts
Going back to a simple (triangular) budget set, but doing some more complicated things with it.
1 Budget constraints
Again, were looking at individual choice, which (like most things in microeconomics) comes down to constrained optimization.
optimization trying to do the best (the person has some criterion for
deciding whats b