Some problems with Consumer Theory
Behavioral Economics is an area that generally looks at
systematic departures from rational standard
1) Endowment Effect
2) Loss Aversion
6) Rules of thu
Another look at Risk Premiums
The point of Risk Premium is to figure out what guaranteed
income gives you the same utility as the risky expected utility.
Here $886 of guaranteed income is the same utility as the
expected income of $900 un
Dealing with Risk
Companies do not take on risk for fun or avoid it
because they are scared.
They are not risk seeking or risk averse.
So why do they enter risky markets?
Firms can smooth risk
Risk can gener
Today we are going to move on from general demand
preferences to a specialized case.
We will also discuss it a bit for firms.
Generally firms are the same as consumers except
that they are risk neutral, while individuals c
On Friday you discussed the relationship between price and
Price-consumption curve (good x vs. good y)
Demand curve (price of x vs. good x)
And the relationship between income and demand:
Income-consumption curve (good x vs.
In the last class we introduced market demand, which is
summed up across individual demand.
We also talked a little bit about elasticity which tell you
something about how steep the slope is in an area around the
current market dem
Can rank everything
A>B and B>C implies A>C
More is better.
4. Convexity or diminishing marginal substitution.
The first unit of anything is really valuable
Additional units a
We solved for the tangency of utility with the budget curve.
Lets do the quick example of and
Lets not plug in any prices or income yet because today we
are going to examine how demand changes as we change , ,
Change to syllabus:
Second exam moved to Monday 11/16
ELC hours: Monday 2-4, Tuesday 3-4
Paul Lombardi ELC hours: Tuesday 2-3, Wednesday 2-3, Friday
ELC hours: Monday 2-3, Thursday 1-2, Friday 4-
Office: SSPB 3297
OH: M 2-3 W: 9-10
Email [email protected]
My research area: Environmental Economics and Transportation
If you take my next two environmental classes we will be
spending a lot of time together t