As you will recall from intermediate micro, monopoly is the situation where there is a single seller
of a good. Because of this, it has the power to set both the price and quantity of the good that
will be sold. We begin our study of mo
Externalities and Public Goods
What is an Externality?
We just showed that competitive markets result in Pareto optimal allocations that is the market
acts to make sure that those who value goods the most receive them, and those that can pro
Competitive Markets and Partial
Up until now we have concentrated our eorts on two major topics - consumer theory, which led to
the theory of demand, and producer theory, which led to the theory of supply. Next, we will put
Choice Under Uncertainty
Up until now, we have been concerned with choice under certainty.
A consumer chooses which
commodity bundle to consume. A producer chooses how much output to produce using which mix
of inputs. In either case, there is no
Markets have two sides: consumers and producers.
Up until now we have been studying the
consumer side of the market. We now begin our study of the producer side of the market.
The basic unit of activity on the production side of
Topics in Consumer Theory
Homothetic and Quasilinear Utility Functions
One of the chief activities of economics is to try to recover a consumers preferences over all bundles
from observations of preferences over a few bundles.
If you could a
The Traditional Approach to
In the previous section, we considered consumer behavior from a choice-based point of view. That
is, we assumed that consumers made choices about which consumption bundle to choose from a set
Consumer Theory Basics
Recall that the goal of economic theory is to account for behavior based on the assumption that
actors have stable preferences, attempt to do as well as possible given those preferences and the
constraints placed on their