18
Technology
Technologies
A
technology is a process by which
inputs are converted to an output.
E.g. labor, a computer, a projector,
electricity, and software are being
combined to produce this lect
Ch. 3
Preferences
Rationality in Economics
Behavioral Postulate:
A decisionmaker always chooses its most
preferred alternative from its set of available
alternatives.
So to model choice we must mode
13
Risky Assets
Mean of a Distribution
A
random variable (r.v.) w takes
values w1,wS with probabilities
1,.,S (1 + + S = 1).
The mean (expected value) of the
distribution is the av. value of the
r.v.
Book/References
(Microeconomics)
Intermediate Microeconomics - A modern
Approach (8th edition )
Author: Hal R. Varian
Introduction to Economic Analysis, by
R. Preston McAfee, (free to web)
Interest
16
Equilibrium
Market Equilibrium
A
market is in equilibrium when total
quantity demanded by buyers equals
total quantity supplied by sellers.
Market Equilibrium
Market
p
demand
q=D(p)
D(p)
Market Equ
15
Market Demand
From Individual to Market
Demand Functions
Think
of an economy containing n
consumers, denoted by i = 1, ,n.
Consumer is ordinary demand
function for commodity j is
x*i (p1 , p2 , m
14
Consumers Surplus
Monetary Measures of Gains-toTrade
You
can buy as much gasoline as
you wish at $1 per gallon once you
enter the gasoline market.
Q: What is the most you would pay to
enter the m
9
Buying and Selling
Buying and Selling
Trade
involves exchange - when
something is bought something else
must be sold.
What will be bought? What will be
sold?
Who will be a buyer? Who will be a
se
12
Uncertainty
Uncertainty is Pervasive
What
is uncertain in economic
systems?
tomorrows prices
future wealth
future availability of commodities
present and future actions of other
people.
Uncert
10
Intertemporal Choice
Intertemporal Choice
Persons
often receive income in
lumps; e.g. monthly salary.
How is a lump of income spread over
the following month (saving now for
consumption later)?
8
Slutsky Equation
Effects of a Price Change
What
happens when a commoditys
price decreases?
Substitution effect: the commodity
is relatively cheaper, so
consumers substitute it for now
relatively m
6
Demand
Properties of Demand Functions
Comparative
statics analysis of
ordinary demand functions - the
study of how ordinary demands
x1*(p1,p2,y) and x2*(p1,p2,y) change as
prices p1, p2 and income
Ch. 4
Utility
Preferences - A Reminder
p
x
y: x is preferred strictly to y.
x ~ y: x and y are equally preferred.
x f y: x is preferred at least as
~
much as is y.
Preferences - A Reminder
Complete