Economics 105: Where Calculus and Economics Meet
Professor Peter Arcidiacono (psarcidi@econ.duke.edu) Head TA Jon James (j.james@duke.edu)
Course plan
Rough schedule is:
Consumer Theory Producer Theory Equilibrium Game Theory
Microeconomics: an Intuitive
Chapter 18
Elasticities, Price-Distorting Policies and Non-Price Rationing
We have demonstrated in the last few chapters how prices form in competitive markets.1 Prices, we have argued, send important signals to all the relevant actors in an economy - all
Chapter 9
Demand for Goods and Supply of Labor and Capital
If you have ever taken an economics class before, you probably dived right into drawing demand and supply curves.1 You may be puzzled by the lack of any attention we have given to these concepts t
Chapter 11
One Input and One Output: A Short-Run Producer Model
In our exposition of the consumer choice model, we have developed a particular lens through which we can view the actions of economic agents: individuals, whether as consumers, workers or fin
Chapter 2
A Consumer's Economic Circumstances
In this chapter, we will begin to formalize what we mean when we say that people make the best choices they can given their circumstances.1 The logical first step is to find ways of describing how our individu
Chapter 13
Production Decisions in the Short and Long Run
Suppose you are happily profit maximizing in your firm that produces economist cards using labor and capital.1 Suddenly you realize that a new government regulation has increased your cost of emplo
Chapter 27
Public Goods
A public good is a good that can be consumed by more than one individual at a time, while a private good is a good that can be consumed by only a single individual.1 When I take out my lunch sandwich, I can take a bite or I can let
Chapter 24
Strategic Thinking and Game Theory
For most of the book, we have assumed that individuals are "small" - that they are unable to alter the economic environment that emerges from individual decisions in a competitive equilibrium and therefore hav
Chapter 5
Different Types of Tastes
In Chapter 4 we demonstrated how tastes can be represented by maps of indifference curves and how 5 basic assumptions about tastes result in particular features of these indifference curves.1 In addition, we illustrated
Chapter 7
Income and Substitution Effects in Consumer Goods Markets
We have just demonstrated in Chapter 6 how we can use our model of choice sets and tastes to illustrate optimal decision making by individuals like consumers or workers.1 We now turn to t
Chapter 10
Consumer Surplus and Dead Weight Loss
Economists and policymakers often want to know not only whether particular policies make people better off or worse off - they also need to quantify how much better off or worse off different consumers are.
Chapter 6
Doing the "Best" We Can
We began our introduction of microeconomics with the simple premise that economic agents try to do the best they can given their circumstances.1 For three types of economic agents - consumers, workers and individuals plan
Chapter 23
Monopoly
We will now turn toward an analysis of the polar opposite of the extreme assumption of perfect competition that we have employed thus far.1 Under perfect competition, we have assumed that industries are composed of so many small firms
Chapter 12
Production with Multiple Inputs
In Chapter 11, we developed some of the basic building blocks of the competitive producer model but we limited ourselves to the case of a single input being used to produce a single output.1 From the outset, we d
Econ 105: Lecture 4
1
Demand Relationships
The Expenditure Function
Recall that if the primal problem is to maximize utility subject to a budget constraint,
Primal :
max U (x, y ) s.t. pX x + pY y I,
(x,y )
then the dual problem is to minimize the cost of
Econ 105: Lecture 3
1
Consumer Optimality
Budget Constraints
The main factor constraining choice for most individuals in a market economy is that they have
limited wealth to spend on goods.
Suppose that a consumers income is I and that the prices of goods
y
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This graph illustrates that compensated demand for a good is always
decreasing in that good price. The red line represents the original price
s
ratio, px , which leads t
Econ 105: Lecture 4
1
Demand Relationships
The Expenditure Function
Recall that if the primal problem is to maximize utility subject to a budget constraint,
Primal :
max U (x, y ) s.t. pX x + pY y I,
(x,y )
then the dual problem is to minimize the cost of
Econ 105: Lecture 5
1
Consumer Welfare
As economists, we would like a way to measure the economic impact of price changes and
government policies on the welfare of an individual. Indirect utility is not a good welfare measure
because it depends on the for
y
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u'
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u
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(x',y')
(x,y)
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The red line represents the original budget line. The brown line represents the
budget line after an increase in the price of x.
1
5.0
x
y
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u'
Econ 105: Lecture 4
1
Demand Relationships
The Expenditure Function
Recall that if the primal problem is to maximize utility subject to a budget constraint,
Primal :
max U (x, y ) s.t. pX x + pY y I,
(x,y )
then the dual problem is to minimize the cost of
Envelope Theorem
a3
f(x3,a)
a2
f(x2,a)
a1
f(x1,a)
a
In this plot, the concave curves represent f (xi ; a), plotted as a function of a,
for three xed values of x. The black convex curve represents the upper
envelope F (a) = f (x (a) ; a). The points of tan
y
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When indierence curves bow toward the origin, the tangency condition
(marginal rate of substitution=price ratio) and the budget constraint are the
conditions for the opt
Problem Set 6 SOLUTIONS Due Thursday, Dec. 3rd, by 10pm
1. Consider a game where a buyer makes a take it or leave it offer, p, to a seller who then decides whether to accept the offer. (a) Suppose the buyer's payoff is 5 - p if the offer is accepted and 0
Shrinking Core Example
Consider two individuals, A and B, who have identical utility functions x1 x2 . A starts off with eA = 10 and eA = 0 while B starts off with eB = 0 and eB = 10. Note that both A and B get zero 2 1 2 1 utility from their current endo
Problem Set 6 Due Thursday, Dec. 3rd, by 10pm
1. Consider a game where a buyer makes a take it or leave it offer, p, to a seller who then decides whether to accept the offer. (a) Suppose the buyer's payoff is 5-p if the offer is accepted and 0 if the offe
$/Q
5
C'(Q)
P*_1
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2
P*_0
1
Q*_0
Q*_1
0
0
1
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5
Q
In this graph the black curve represents marginal cost, the red lines represent
initial levels of price and quantity, the blue lines represent new levels of price
and quantity. Clearly an increase in