Module 2 THEORETICAL TOOLS & APPLICATION. Lectures (3-7) Topics
|
|
- Gwendolyn Armstrong
- 5 years ago
- Views:
Transcription
1 Module 2 THEORETICAL TOOLS & APPLICATION 2.1 Tools of Public Economics Lectures (3-7) Topics 2.2 Constrained Utility Maximization 2.3 Marginal Rates of Substitution 2.4 Constrained Utility Maximization: Budget Constraints 2.5 Substitution Effects and Income Effects 2.6 Putting the Tools to Work the Effect of Temporary Assistance Programs on the Budget Constraint 2.7 Budget Constraint 2.8 The Effect of Temporary Assistance Programs on the Budget Constraint 2.9 The Effect of Various Policy Changes 2.10 What Happens to Labor Supply in Response to Such a Policy Change? 2.11 A Different Preference Function 2.12 Summary of Labor Supply Effects 2.13 Recap of Relevant Concepts Social Welfare 1
2 Demand Curves 2.14 Elasticity of Demand Perfectly Inelastic Perfectly Elastic 2.15 Production & Cost Function 2.16 Profit Maximization 2.17 Equilibrium: Aggregate Demand 2.18 Equilibrium: Aggregate Supply 2.19 Competitive Equilibrium 2.20 Competitive Equilibrium Maximizes Social Efficiency 2.21 Equilibrium and Social Welfare Competitive Equilibrium Maximizes Social Efficiency The Role of Equity Welfare Maximization 2.22 Welfare Implication of Benefit Reduction 2
3 Module 2 Lecture 3 Topics 2.1 TOOLS OF PUBLIC ECONOMICS Suppose that you are a member of the economic advisory board of the PM and the PM must decide on the amount of cash transfer that is to be made to the NREGS program. The chief economic advisor believes that by providing cash to very low income families, it only encourages them to stay at home rather than go to work. To provide incentives to these people the government must cut back on the cash benefits. The PM disagrees; he thinks that poor families who are at home in villages are incapable of finding a job that pays them high enough to encourage them to work. So if the state cuts the cash benefits it will only penalize these poor households. You being a researcher are being asked to inform this debate by assessing the degree to which cutting cash benefits to low income families will encourage them to work by evaluating the cut. Such an evaluation would require you to use both theoretical and empirical tools of economics. Theoretical tools are a set of tools used to understand economic decision making. They are primarily graphical and mathematical. Empirical tools allow you to examine the theory with data. First we would discuss a few theoretical tools derived from microeconomics that are most commonly used in public policy analysis. Theoretical Tools: Recap of utility maximization. 2.2 CONSTRAINED UTILITY MAXIMIZATION Constrained utility maximization: individuals have well defined utility functions. In modeling preferences, we do not impose any budget constraint. Simply ask what people prefer, ignoring what they can afford. 3
4 Assumption0: Individuals prefer higher Indifference Curves: Non Satiation 10 th pizza is not as good as 1 st. But having the 10 th pizza is better than not having it Figure 3.1 Higher salary in Kanpur is enough to compensate him for a city life in Bombay. But he may prefer Gurgaon to either: the salary is higher than in Bombay but city (how urban) is more fun than Kanpur. Convexity of preferences Figure 3.2 Constrained utility maximization: all decisions are made in order to maximize the well-being of the individual, subject to his available resources. Recall that Marginal utility is defined as the additional increment to utility from consuming an additional unit of a good. Diminishing marginal utility means each additional unit makes the individual less happy than the previous unit. Let us consider 2 goods M and C and the utility function marginal utility is:,, the 4
5 2.3 MARGINAL RATES OF SUBSTITUTION Figure 3.3 The individual is willing to give up fewer C to get more M when she has more M than less. Figure 3.4 Moving from point A to point B along indifference curve we have: Loss in utility from less Gain in utility from more Since he is on the same Indifference Curve (IC), loss = gain, so that total utility is constant How much C she is willing to give up for an additional unit of M. This is defined as the marginal rate of substitution (MRS). 5
6 Relationship between MRS and marginal utility is given by. i.e. the MRS shows how relative Marginal utilities evolve over the IC. Moving from left to right => and. Slope of the indifference curve is called the Marginal rate of substitution and is the rate at which consumer is willing to trade off the two goods. Is MRS constant along the IC? MRS is diminishing (in absolute terms) as we move along an indifference curve. This means that an individual is willing to give up fewer units of C to get more M when she has more M (bundle B in Fig 3.4) than when she has less M (bundle A in fig 3.4). 2.4 CONSTRAINED UTILITY MAXIMIZATION: BUDGET CONSTRAINTS Budget constraint: The budget constraint is a representation of the combination of goods the consumer can afford to buy with a given income. Where, Y = Income level P M = Price of movie P C = Price of CD Thus, the total amount spent must equal income, assuming no saving or borrowing. The slope of the budget constraint is: Optimization Problem : What is the highest IC that an individual can reach given a budget constraint? The individual chooses the bundle of goods that gives the highest utility, subject to the budget constraint. At the optimum: slope of the indifference curve equals the slope of the budget constraint. 6
7 The benefit of her consuming another M is the MRS, the rate at which she is willing to trade C for M. The cost to her of making this trade is the price ratio, the rate at which the market allows her to trade C for M. Thus the optimal choice is one at which Figure 3.5 Thus, the marginal rate of substitution equals the ratio of prices: Figure 3.6 One way to demonstrate that 1 is optimal choice is to show that she is worse off with any others choice. At 2, She is willing to give up more C for 1 unit of M than what the market is charging for an additional unit of M (the rel. price of M). She can make herself better off by C & M & move from 2 to 1. Key result so far. She is worse off at any other point on the indifference curve SUBSTITUTION EFFECTS AND INCOME EFFECTS Consider an, Increase in the price of M, P M. A change in price consists of two effects: Substitution effect change in consumption due to change in relative prices, holding utility constant. Income effect change in consumption due to feeling poorer after price increase. 7
8 Figure 3.7 In Fig 3.7 as, Budget constraint becomes steeper. Let the budget constraint shift from AB to AD. relative price of is more expensive now. Moreover real income falls. Suppose government provides subsidy to compensate for the in If we keep utility level constant the individual is on the same level of indifference curve. Only the slope of the budget constraint changes. Decline in is due to Substitution effect. As you move along indifference curve (1-1 ), for same level of utilities, is relatively more expensive. Hence is relatively cheaper. Hence. You substitute more expensive M by cheaper C. This effect of a price change is called a Substitution Effect. is going to another indifference curve with new slope of Budget constraint relative price is same as EF but income falls. further as we move from. This change is purely due to a change in real income and hence constitutes the income effect. Movement along indifference curve =Substitution Effect Movement from indifference curve = Income Effect. 8
Chapter 4 Topics. Behavior of the representative consumer Behavior of the representative firm Pearson Education, Inc.
Chapter 4 Topics Behavior of the representative consumer Behavior of the representative firm 1-1 Representative Consumer Consumer s preferences over consumption and leisure as represented by indifference
More informationTheoretical Tools of Public Finance. 131 Undergraduate Public Economics Emmanuel Saez UC Berkeley
Theoretical Tools of Public Finance 131 Undergraduate Public Economics Emmanuel Saez UC Berkeley 1 THEORETICAL AND EMPIRICAL TOOLS Theoretical tools: The set of tools designed to understand the mechanics
More informationMICROECONOMIC THEORY 1
MICROECONOMIC THEORY 1 Lecture 2: Ordinal Utility Approach To Demand Theory Lecturer: Dr. Priscilla T Baffour; ptbaffour@ug.edu.gh 2017/18 Priscilla T. Baffour (PhD) Microeconomics 1 1 Content Assumptions
More informationFull file at
Full file at https://fratstock.eu Chapter 2 MULTIPLE-CHOICE QUESTIONS 1. In the context of the basic work-leisure model, work is defined as: a. time devoted to a paying job or household work b.* time devoted
More informationEconS 301 Intermediate Microeconomics Review Session #4
EconS 301 Intermediate Microeconomics Review Session #4 1. Suppose a person's utility for leisure (L) and consumption () can be expressed as U L and this person has no non-labor income. a) Assuming a wage
More informationTHEORETICAL TOOLS OF PUBLIC FINANCE
Solutions and Activities for CHAPTER 2 THEORETICAL TOOLS OF PUBLIC FINANCE Questions and Problems 1. The price of a bus trip is $1 and the price of a gallon of gas (at the time of this writing!) is $3.
More informationnot to be republished NCERT Chapter 2 Consumer Behaviour 2.1 THE CONSUMER S BUDGET
Chapter 2 Theory y of Consumer Behaviour In this chapter, we will study the behaviour of an individual consumer in a market for final goods. The consumer has to decide on how much of each of the different
More informationWe want to solve for the optimal bundle (a combination of goods) that a rational consumer will purchase.
Chapter 3 page1 Chapter 3 page2 The budget constraint and the Feasible set What causes changes in the Budget constraint? Consumer Preferences The utility function Lagrange Multipliers Indifference Curves
More informationChapter 4. Consumer and Firm Behavior: The Work- Leisure Decision and Profit Maximization. Copyright 2014 Pearson Education, Inc.
Chapter 4 Consumer and Firm Behavior: The Work- Leisure Decision and Profit Maximization Copyright Chapter 4 Topics Behavior of the representative consumer Behavior of the representative firm 1-2 Representative
More informationEconomics II - Exercise Session # 3, October 8, Suggested Solution
Economics II - Exercise Session # 3, October 8, 2008 - Suggested Solution Problem 1: Assume a person has a utility function U = XY, and money income of $10,000, facing an initial price of X of $10 and
More information2.6 Putting the Tools to Work the Effect of Temporary Assistance Programs on the Budget Constraint
Module 2 Lecture 4 Topics 26 Putting the Tools to Work the Effect of Temporary Assistance Programs on the Budget Constraint 27 Budget Constraint 28 The Effect of Temporary Assistance Programs on the Budget
More informationMicroeconomics. The Theory of Consumer Choice. N. Gregory Mankiw. Premium PowerPoint Slides by Ron Cronovich update C H A P T E R
C H A P T E R 21 The Theory of Consumer Choice Microeconomics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2010 South-Western, a part of Cengage Learning, all rights
More informationEcon 1101 Summer 2013 Lecture 7. Section 005 6/26/2013
Econ 1101 Summer 2013 Lecture 7 Section 005 6/26/2013 Announcements Homework 6 is due tonight at 11:45pm, CDT Midterm tomorrow! Will start at 5:40pm, there is a recitation beforehand. Make sure to work
More informationChapter 3. Consumer Behavior
Chapter 3 Consumer Behavior Question: Mary goes to the movies eight times a month and seldom goes to a bar. Tom goes to the movies once a month and goes to a bar fifteen times a month. What determine consumers
More informationFaculty: Sunil Kumar
Objective of the Session To know about utility To know about indifference curve To know about consumer s surplus Choice and Utility Theory There is difference between preference and choice The consumers
More informationIntroduction to economics for PhD Students of The Institute of Physical Chemistry, PAS Lecture 3 Consumer s choice
Introduction to economics for PhD Students of The Institute of Physical Chemistry, PAS Lecture 3 Consumer s choice Dr hab. Gabriela Grotkowska, University of Warsaw Based on: Mankiw G., Taylor R, Economics,
More informationThe Rational Consumer. The Objective of Consumers. The Budget Set for Consumers. Indifference Curves are Like a Topographical Map for Utility.
The Rational Consumer The Objective of Consumers 2 Finish Chapter 8 and the appendix Announcements Please come on Thursday I ll do a self-evaluation where I will solicit your ideas for ways to improve
More informationPAPER NO.1 : MICROECONOMICS ANALYSIS MODULE NO.6 : INDIFFERENCE CURVES
Subject Paper No and Title Module No and Title Module Tag 1: Microeconomics Analysis 6: Indifference Curves BSE_P1_M6 PAPER NO.1 : MICRO ANALYSIS TABLE OF CONTENTS 1. Learning Outcomes 2. Introduction
More informationThe Rational Consumer. The Objective of Consumers. Maximizing Utility. The Budget Set for Consumers. Slope =
The Rational Consumer The Objective of Consumers 2 Chapter 8 and the appendix Announcements We have studied demand curves. We now need to develop a model of consumer behavior to understand where demand
More informationChapter 1 Microeconomics of Consumer Theory
Chapter Microeconomics of Consumer Theory The two broad categories of decision-makers in an economy are consumers and firms. Each individual in each of these groups makes its decisions in order to achieve
More information1. Compare the following two pairs of goods: (1) Coke and Pepsi, (2) Plane tickets and hotel bookings
ECNS 251 Homework 5 Consumer Theory 1. Compare the following two pairs of goods: (1) Coke and Pepsi, (2) Plane tickets and hotel bookings a. What is the relationship between Coke and Pepsi? What is the
More informationConsumer Choice and Demand
Consumer Choice and Demand CHAPTER12 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Calculate and graph a budget line that shows the limits to
More informationEcon 323 Microeconomic Theory. Practice Exam 1 with Solutions
Econ 323 Microeconomic Theory Practice Exam 1 with Solutions Chapter 2, Question 1 The equilibrium price in a market is the price where: a. supply equals demand b. no surpluses or shortages result c. no
More informationEcon 323 Microeconomic Theory. Chapter 2, Question 1
Econ 323 Microeconomic Theory Practice Exam 1 with Solutions Chapter 2, Question 1 The equilibrium price in a market is the price where: a. supply equals demand b. no surpluses or shortages result c. no
More informationEastern Mediterranean University Faculty of Business and Economics Department of Economics Spring Semester
Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2015 16 Spring Semester ECON101 Introduction to Economics I Second Midterm Exam Duration: 90 minutes Type A 23
More informationProblem Set #1. 1) CD s cost $12 each and video rentals are $4 each. (This is a standard budget constraint.)
Problem Set #1 I. Budget Constraints Ming has a budget of $60/month to spend on high-tech at-home entertainment. There are only two goods that he considers: CD s and video rentals. For each of the situations
More informationTopic 3: The Standard Theory of Trade. Increasing opportunity costs. Community indifference curves.
Topic 3: The Standard Theory of Trade. Outline: 1. Main ideas. Increasing opportunity costs. Community indifference curves. 2. Marginal rates of transformation and of substitution. 3. Equilibrium under
More informationHomework 1 Solutions
Homework 1 Solutions ECON 5332 Government, Taxes, and Business Strategy Spring 28 January 22, 28 1. Consider an income guarantee program with an income guarantee of $3 and a benefit reduction rate of 5
More information(Note: Please label your diagram clearly.) Answer: Denote by Q p and Q m the quantity of pizzas and movies respectively.
1. Suppose the consumer has a utility function U(Q x, Q y ) = Q x Q y, where Q x and Q y are the quantity of good x and quantity of good y respectively. Assume his income is I and the prices of the two
More informationA Closed Economy One-Period Macroeconomic Model
A Closed Economy One-Period Macroeconomic Model Chapter 5 Topics in Macroeconomics 2 Economics Division University of Southampton February 21, 2008 Chapter 5 1/40 Topics in Macroeconomics Closing the Model
More informationPRACTICE QUESTIONS CHAPTER 5
CECN 104 PRACTICE QUESTIONS CHAPTER 5 1. Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility realized by consuming one
More informationMarginal Utility Theory. K. Adjei-Mantey Department of Economics
Marginal Utility Theory K. Adjei-Mantey Department of Economics Kadjei-mantey@ug.edu.gh Utility and Marginal Utility Every economic agent attempts to make the best out of every decision Marginal utility
More informationMicroeconomics Pre-sessional September Sotiris Georganas Economics Department City University London
Microeconomics Pre-sessional September 2016 Sotiris Georganas Economics Department City University London Organisation of the Microeconomics Pre-sessional o Introduction 10:00-10:30 o Demand and Supply
More informationCHAPTER 2 The Theory of Individual Labor Supply
CHAPTER 2 The Theory of Individual Labor Supply I. THE WORK-LEISURE DECISION: BASIC MODEL A. Indifference Curves 1. Negative Slope 2. Convex to Origin 3. Indifference Map 4. Different Work-Leisure Preferences
More informationConsumer Choice and Demand
Consumer Choice and Demand 1 Utility Utility Analysis Sense of pleasure, or satisfaction that comes from consumption Subjective Assumption Taste are given Tastes are relatively stable 2 Total utility Utility
More informationConsumers cannot afford all the goods and services they desire. Consumers are limited by their income and the prices of goods.
Budget Constraint: Review Consumers cannot afford all the goods and services they desire. Consumers are limited by their income and the prices of goods. Model Assumption: Consumers spend all their income
More informationIntroductory to Microeconomic Theory [08/29/12] Karen Tsai
Introductory to Microeconomic Theory [08/29/12] Karen Tsai What is microeconomics? Study of: Choice behavior of individual agents Key assumption: agents have well-defined objectives and limited resources
More informationMarket failure Redistribution- Tax or subsidy Restrict or mandate private sale or purchase Public provision Public financing of private provision
8/04/2015 2:42 PM Public Finance Four Questions: o When should governments intervene?! Market failure- problem that causes an outcome that does not maximize efficiency. Increase size of the pie. " If a
More informationLecture 19 Monday, Oct. 26. Lecture. 1 Indifference Curves: Perfect Substitutes. 1. Problem Set 2 due tomorrow night.
Lecture 19 Monday, Oct. 1. Problem Set due tomorrow night.. At the course web site, I have posted some practice questions about consumer theory. I recommend taking a look at this. This material will be
More informationEconomics 101 Section 5
Economics 101 Section 5 Lecture #10 February 17, 2004 The Budget Constraint Marginal Utility Consumer Choice Indifference Curves Overview of Chapter 5 Consumer Choice Consumer utility and marginal utility
More informationECON 310 Fall 2005 Final Exam - Version A. Multiple Choice: (circle the letter of the best response; 3 points each) and x
ECON 30 Fall 005 Final Exam - Version A Name: Multiple Choice: (circle the letter of the best response; 3 points each) Mo has monotonic preferences for x and x Which of the changes described below could
More informationEcn Intermediate Microeconomic Theory University of California - Davis October 16, 2008 Professor John Parman. Midterm 1
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis October 16, 2008 Professor John Parman Midterm 1 You have until 6pm to complete the exam, be certain to use your time wisely.
More informationMathematical Economics
Mathematical Economics Dr Wioletta Nowak, room 205 C wioletta.nowak@uwr.edu.pl http://prawo.uni.wroc.pl/user/12141/students-resources Syllabus Mathematical Theory of Demand Utility Maximization Problem
More informationFundamental Theorems of Welfare Economics
Fundamental Theorems of Welfare Economics Ram Singh October 4, 015 This Write-up is available at photocopy shop. Not for circulation. In this write-up we provide intuition behind the two fundamental theorems
More informationIntroductory Microeconomics (ES10001)
Topic 2: Household ehaviour Introductory Microeconomics (ES11) Topic 2: Consumer Theory Exercise 4: Suggested Solutions 1. Which of the following statements is not valid? utility maximising consumer chooses
More informationLABOR SUPPLY I. CONSUMER THEORY. I. Consumer theory II. Labor supply by individuals III. What happens when wages change IV. Elasticity of labor supply
LABOR SUPPLY I. Consumer theory II. Labor supply by individuals III. What happens when wages change IV. Elasticity of labor supply I. CONSUMER THEORY Basis for theory of labor supply SIMPLIFYING ASSUMPTIONS
More informationTopic 2 Part II: Extending the Theory of Consumer Behaviour
Topic 2 part 2 page 1 Topic 2 Part II: Extending the Theory of Consumer Behaviour 1) The Shape of the Consumer s Demand Function I Effect Substitution Effect Slope of the D Function 2) Consumer Surplus
More information14.54 International Trade Lecture 3: Preferences and Demand
14.54 International Trade Lecture 3: Preferences and Demand 14.54 Week 2 Fall 2016 14.54 (Week 2) Preferences and Demand Fall 2016 1 / 29 Today s Plan 1 2 Utility maximization 1 2 3 4 Budget set Preferences
More informationConsumer Theory. Introduction Budget Set/line Study of Preferences Maximizing Utility
Consumer Theory Introduction Budget Set/line Study of Preferences Maximizing Utility Introduction Where does the law of demand come from? Consumption choices depend on two factors: 1. What choices you
More informationEcon 1101 Practice Questions about Consumer Theory Solution
Econ 0 Practice Questions about Consumer Theory Solution Question : Sam eats only green eggs and ham. He has an income of $3. Green eggs have a price of P G = $ and ham has a price of P H = $. Sam s preferences
More informationMarginal Utility, Utils Total Utility, Utils
Mr Sydney Armstrong ECN 1100 Introduction to Microeconomics Lecture Note (5) Consumer Behaviour Evidence indicated that consumers can fulfill specific wants with succeeding units of a commodity but that
More informationLecture # Applications of Utility Maximization
Lecture # 10 -- Applications of Utility Maximization I. Matching vs. Non-matching Grants Here we consider how direct aid compares to a subsidy. Matching grants the federal government subsidizes local spending.
More informationUniversity of Victoria. Economics 325 Public Economics SOLUTIONS
University of Victoria Economics 325 Public Economics SOLUTIONS Martin Farnham Problem Set #5 Note: Answer each question as clearly and concisely as possible. Use of diagrams, where appropriate, is strongly
More informationSolutions to Assignment #2
ECON 20 (Fall 207) Department of Economics, SFU Prof. Christoph Lülfesmann exam). Solutions to Assignment #2 (My suggested solutions are usually more detailed than required in an I. Short Problems. The
More informationMathematical Economics Dr Wioletta Nowak, room 205 C
Mathematical Economics Dr Wioletta Nowak, room 205 C Monday 11.15 am 1.15 pm wnowak@prawo.uni.wroc.pl http://prawo.uni.wroc.pl/user/12141/students-resources Syllabus Mathematical Theory of Demand Utility
More informationAppendix: Indifference Curves
Appendix: Indifference Curves Chapter APPENDIX CHECKLIST The appendix uses indifference curves and budget lines to derive a demand curve. Indifference curves An indifference curve is a line that shows
More informationECON 3020 Intermediate Macroeconomics
ECON 3020 Intermediate Macroeconomics Chapter 4 Consumer and Firm Behavior The Work-Leisure Decision and Profit Maximization 1 Instructor: Xiaohui Huang Department of Economics University of Virginia 1
More informationPrinciple of Microeconomics
Principle of Microeconomics Chapter 21 Consumer choices Elements of consumer choices Total amount of money available to spend. Price of each item consumers on a perfectly competitive market are price takers.
More informationWe will make several assumptions about these preferences:
Lecture 5 Consumer Behavior PREFERENCES The Digital Economist In taking a closer at market behavior, we need to examine the underlying motivations and constraints affecting the consumer (or households).
More informationMODULE No. : 9 : Ordinal Utility Approach
Subject Paper No and Title Module No and Title Module Tag 2 :Managerial Economics 9 : Ordinal Utility Approach COM_P2_M9 TABLE OF CONTENTS 1. Learning Outcomes: Ordinal Utility approach 2. Introduction:
More informationR.E.Marks 1997 Recap 1. R.E.Marks 1997 Recap 2
R.E.Marks 1997 Recap 1 R.E.Marks 1997 Recap 2 Concepts Covered maximisation (& minimisation) prices, CPI, inflation, purchasing power demand & supply market equilibrium, gluts, excess demand elasticity
More informationIntroduction. The Theory of Consumer Choice. In this chapter, look for the answers to these questions:
21 The Theory of Consumer Choice P R I N C I P L E S O F ECONOMICS FOURTH EDITION N. GREGORY MANKIW Premium PowerPoint Slides by Ron Cronovich 2008 update 2008 South-Western, a part of Cengage Learning,
More informationChapter 4 Read this chapter together with unit four in the study guide. Consumer Choice
Chapter 4 Read this chapter together with unit four in the study guide Consumer Choice Topics 1. Preferences. 2. Utility. 3. Budget Constraint. 4. Constrained Consumer Choice. 5. Behavioral Economics.
More informationECONOMICS SOLUTION BOOK 2ND PUC. Unit 2
ECONOMICS SOLUTION BOOK N PUC Unit I. Choose the correct answer (each question carries mark). Utility is a) Objective b) Subjective c) Both a & b d) None of the above. The shape of an indifference curve
More informationIntro to Economic analysis
Intro to Economic analysis Alberto Bisin - NYU 1 The Consumer Problem Consider an agent choosing her consumption of goods 1 and 2 for a given budget. This is the workhorse of microeconomic theory. (Notice
More informationMathematical Economics dr Wioletta Nowak. Lecture 1
Mathematical Economics dr Wioletta Nowak Lecture 1 Syllabus Mathematical Theory of Demand Utility Maximization Problem Expenditure Minimization Problem Mathematical Theory of Production Profit Maximization
More informationLecture 10: Two-Period Model
Lecture 10: Two-Period Model Consumer s consumption/savings decision responses of consumer to changes in income and interest rates. Government budget deficits and the Ricardian Equivalence Theorem. Budget
More informationMicroeconomics I 2011/12
October 25, 2011 Undergraduate Programs Business Administration and Economics Microeconomics I 2011/12 Duration: 2h15m + 30 min Fernando Branco, Fernando Machado (Professors), Bruno Pereira, Daniel Horta,
More informationLabor Supply. Ch. 2: 3-8
Labor Supply Ch. 2: 3-8 Introduction to Labor Supply We saw some facts. How do we explain them? Outline: Microeconomic foundations of the labor supply decision. Extensive margin: To work, or not to work?
More informationSlideset 1: Chapters 1-4 Wolfgang Schwarzbauer
Slideset 1: Chapters 1-4 Wolfgang Schwarzbauer Roadmap Introduction Chapter 1 Demand and Supply Chapter 2 The Concept of Elasticity Chapter 3 The Theory of Individual Behavior Chapter 4 2 Economics of
More informationEastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester. ECON 101 Mid term Exam
Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2014 15 Fall Semester ECON 101 Mid term Exam Suggested Solutions 28 November 2014 Duration: 90 minutes Name Surname:
More informationLecture 3: Consumer Choice
Lecture 3: Consumer Choice September 15, 2015 Overview Course Administration Ripped from the Headlines Quantity Regulations Consumer Preferences and Utility Indifference Curves Income and the Budget Constraint
More informationMIDTERM #2 VERSION 1
Econ 101 Lec 3 Fall 2001 Midterm #2 Version 1 November 6, 2001 Student Name: ID Number: Section # (Official): TA Name (Official): MIDTERM #2 VERSION 1 DO NOT BEGIN WORKING UNTIL THE INSTRUCTOR TELLS YOU
More informationCHAPTER 4. The Theory of Individual Behavior
CHAPTER 4 The Theory of Individual Behavior Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter
More informationNo books, notes, or other aids are permitted. You may, however, use an approved calculator. Do not turn to next pages until told to do so by examiner.
Economics 103 F11 Principles of Microeconomics: Sample Test #2 Dr. H.J. Schuetze 70 Minutes Part A Multiple Choice 30 x 2 marks each = 60 (note this is 10 more than will be on our exam but I thought the
More informationEco 300 Intermediate Micro
Eco 300 Intermediate Micro Instructor: Amalia Jerison Office Hours: T 12:00-1:00, Th 12:00-1:00, and by appointment BA 127A, aj4575@albany.edu A. Jerison (BA 127A) Eco 300 Spring 2010 1 / 27 Review of
More informationAnswers To Chapter 7. Review Questions
Answers To Chapter 7 Review Questions 1. Answer d. In the household production model, income is assumed to be spent on market-purchased goods and services. Time spent in home production yields commodities
More informationLecture 5: Individual and Market Demand
Lecture 5: Individual and Market Demand September 29, 2015 Overview Course Administration Change in Income and Changes in Consumption Figuring Out Your Demand Curve Income and Substitution Effects Individual
More informationProblem Set VI: Edgeworth Box
Problem Set VI: Edgeworth Box Paolo Crosetto paolo.crosetto@unimi.it DEAS - University of Milan Exercises solved in class on March 15th, 2010 Recap: pure exchange The simplest model of a general equilibrium
More informationModule 10. Lecture 37
Module 10 Lecture 37 Topics 10.21 Optimal Commodity Taxation 10.22 Optimal Tax Theory: Ramsey Rule 10.23 Ramsey Model 10.24 Ramsey Rule to Inverse Elasticity Rule 10.25 Ramsey Problem 10.26 Ramsey Rule:
More informationECON Micro Foundations
ECON 302 - Micro Foundations Michael Bar September 13, 2016 Contents 1 Consumer s Choice 2 1.1 Preferences.................................... 2 1.2 Budget Constraint................................ 3
More informationECONOMICS. Paper 3: Fundamentals of Microeconomic Theory Module 5: Applications of Indifference curve
Subject Paper No and Title Module No and Title Module Tag 3: Fundamentals of Microeconomic Theory 5: Applications of Indifference curve ECO_P3_M5 TABLE OF CONTENTS 1. Learning Outcomes 2. Introduction
More informationReview for the Second Exam Intermediate Microeconomics Fall 2010
Review for the Second Exam Intermediate Microeconomics Fall 2010 1. Matt recently moved to New York City. To model his behavior, assume he only consumes rental housing (H) and a composite good (X, P X
More informationLecture 5: Individual and Market Demand
Lecture 5: Individual and Market Demand September 27, 2016 Overview Course Administration Change in Income and Changes in Consumption Figuring Out Your Demand Curve Income and Substitution Effects Individual
More informationAS/ECON 4070 AF Answers to Assignment 1 October 2001
AS/ECON 4070 AF Answers to Assignment 1 October 2001 1. Yes, the allocation will be efficient, since the tax in this question is a tax on the value of people s endowments. This is a lump sum tax. In an
More informationPOSSIBILITIES, PREFERENCES, AND CHOICES
Chapt er 9 POSSIBILITIES, PREFERENCES, AND CHOICES Key Concepts Consumption Possibilities The budget line shows the limits to a household s consumption. Figure 9.1 graphs a budget line. Consumption points
More information9 D/S of/for Labor. 9.1 Demand for Labor. Microeconomics I - Lecture #9, April 14, 2009
Microeconomics I - Lecture #9, April 14, 2009 9 D/S of/for Labor 9.1 Demand for Labor Demand for labor depends on the price of labor, price of output and production function. In optimum a firm employs
More informationSummer 2016 Microeconomics 2 ECON1201. Nicole Liu Z
Summer 2016 Microeconomics 2 ECON1201 Nicole Liu Z3463730 BUDGET CONSTAINT THE BUDGET CONSTRAINT Consumption Bundle (x 1, x 2 ): A list of two numbers that tells us how much the consumer is choosing of
More informationTax of $1. Quantity of wine
ECN 104 Notes MARCH 10-14 Elasticities and Taxes When the government puts a tax on the sellers (i.e. manufacturing tax), the tax can be viewed as an increase in the firm s marginal cost. But who is really
More informationLecture 5: Individual and Market Demand
Lecture 5: Individual and Market Demand September 26, 2017 Overview Course Administration Change in Income and Changes in Consumption Figuring Out Your Demand Curve Income and Substitution Effects Individual
More informationCONSUMPTION THEORY - first part (Varian, chapters 2-7)
QUESTIONS for written exam in microeconomics. Only one answer is correct. CONSUMPTION THEORY - first part (Varian, chapters 2-7) 1. Antonio buys only two goods, cigarettes and bananas. The cost of 1 packet
More informationOverview Definitions Mathematical Properties Properties of Economic Functions Exam Tips. Midterm 1 Review. ECON 100A - Fall Vincent Leah-Martin
ECON 100A - Fall 2013 1 UCSD October 20, 2013 1 vleahmar@uscd.edu Preferences We started with a bundle of commodities: (x 1, x 2, x 3,...) (apples, bannanas, beer,...) Preferences We started with a bundle
More informationChapter 21: Theory of Consumer Choice
Chapter 21: Theory of Consumer Choice We will now try to "get behind the demand curve To get behind the D curve we must study individual behavior How do individuals make consumption decisions? We have
More informationMICROECONOMICS - CLUTCH CH CONSUMER CHOICE AND BEHAVIORAL ECONOMICS
!! www.clutchprep.com CONCEPT: BUDGET CONSTRAINT A budget constraint shows the limitations on what you can Income The amount of money available to spend Choose between various combinations of goods that
More informationPreferences. Rationality in Economics. Indifference Curves
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 model decisionmakers
More informationChapter 1: Introduction (read on your own) Chapter 1 Appendix: Regression Analysis (read on your own)
Chapter 1: Introduction (read on your own) Chapter 1 Appendix: Regression Analysis (read on your own) 1. Terms and concepts P=Population L=Labor force = E + U (employed + unemployed) L/P = labor force
More informationEconomics and Finance,
Economics and Finance, 2014-15 Lecture 2: Consumption and Investment decisions without capital markets Luca Deidda UNISS, DiSEA October 2014 Luca Deidda (UNISS, DiSEA) EF October 2014 1 / 19 Plan Introduction
More informationLecture 4: Consumer Choice
Lecture 4: Consumer Choice September 18, 2018 Overview Course Administration Ripped from the Headlines Consumer Preferences and Utility Indifference Curves Income and the Budget Constraint Making a Choice
More informationLecture 8: Producer Behavior
Lecture 8: Producer Behavior October 23, 2018 Overview Course Administration Basics of Production Production in the Short Run Production in the Long Run The Firm s Problem: Cost Minimization Returns to
More information제 4 장소비자행동이론. The Theory of Consumer Behavior
제 4 장소비자행동이론 The Theory of Consumer Behavior 소비자행동 Consumer Behavior Consumer Preferences 소비자선호 The goods and services consumers actually consume. Given the choice between 2 bundles of goods a consumer
More information