Riassunto esame Microeconomics, Prof. Gianfreda Giuseppina, libro consigliato Microeconomics sixth edition , David Besanko / Ronald Braeutigam

2 combinations

Consumer preferences

Consumer rank baskets, preserve preferences. Transformations that, or allotments, MRS of monotonic, or bundles, MRS unchanged transformations, MRS same. If utility change U(x,y)=(xy)^2 U(x,y)=xy MRS=y/x.

• A preferred to B, completeness.
• B preferred to A.
• Indifferent between A and B.

Assumptions: transitivity A>B, B>C so A>C. Monotonicity: more is better than less.

Cobb-Douglas: hyperbolic, asymptoting. Curves are: satisfaction from any basket, never touching any axis. More y is consumed, the higher the utility. Measurements of monotonicity.

E.g. perfect substitutes: utility function linear and parallel. Curves are: C>B; B>A; C>A transitivity. MRS constant. E.g. list students in order of their performance.

Ordinal concept vs cardinal ranking. E.g. list students in order of their marks. Utility is not comparable across individuals.

Special functional forms. Perfect complements: unique utility function to represent a preference relation. There is not a right-angle curve. Curves are: E.g. U=xy vs U=x^2y^2 same preferences.

Consumer preferences and utility

1. Consumer across all the in parenthesis takes the minimum, MIN: preferences and the concept of utility. A function that transforms one set of numbers into another preserving order numbers.

Quasi-linear: same slope curve: monotonic transformation of the other, vertical shifted copy. Each curve always increasing represents the same preferences as the original U(f).

Additional utility from consuming a little more of y. Concave preferences: I don’t like them together. Marginal utility, good Y. Bads and neutrals. Slope of utility respect to y.

Principle of diminishing: additional utility from consuming a little more of x when y is fixed. If y decreases then U decreases. Marginal utility, multiple goods.

Utility constant to maintain the increases x, so we should. Negative slope of indifference curve. A set of all baskets consumer indifferent for them.

Indifferent map: a set of indifference curves. MRS decreases too if MU decreases. Marginal rate of substitution. Indifference of curve, same utility for all baskets on the same curve.

In exchange for y give up. The more I’m disposed to more x I have.

Sotto-argomento 2 convexity

Convexity, negative slope, not thick.

Key properties:

• Do not cross.
• Negative slope of indifference curve = positive MU.
• Each basket only on one indifference curve.

Absolute value, indifference curves convex = diminishing MU.

Budget constraint

Budget constraint: set of baskets consumer can purchase depending form limited income (I). Budget line: the discount utility. How does a change in income, impatience function, affect the budget line? How does a change in price affect the budget line?

Over time optimal consumption allocation. The problem now is:

• This year, two periods.
• Next year.

Consumer’s pursuit of maximizing satisfaction. I1 2 income flow 2 consumer choice income. I2 consideration of available rational choice and maximizing and prices and intertemporal. C1 satisfaction 2 consumptions C2 choice.

For next year, so saving money: put money in the bank. The amount borrowed I will pay next year, or borrow money + r. Suppose r=interest rate.

Consumer choice and intertemporal choice

Interior optimum: optimal consumption is at the point of tangency. Tangent: tangent line representing equal slope. Consumer preferences and budget constraint. Balance between intertemporal choice.

Future value: interior optimum tangency condition: for consumer equality of the rate at which goods are exchange and marketplace with tangency condition, identifying the optimal condition.

Future amounts only if “well-behaved” preferences translate into present day equivalents. Present value: cases where optimal solution differs from tangency conditions.

Corner points where one good is not consumed. Corner: perfect substitutes. Corner and kinked solutions. Perfect complements consumes in fixed proportion. Kinked.

Maximizing utility at every point of the demand. MRS falls if price x falls. Maximum willingness to pay, demand curve. Difference between price x falls, utility moves down and rightward on the demand curve. Actual payment amount. Demand curve is willingness to pay.

Consumer surplus, welfare measure of ordinary demand functions X(px,py,I) and y(px,py,I) identify the optimal choice of goods x,y. Set of optimal baskets.

Income increases. Demand curve shifts for every possible level of income. Income consumption curve.

3 theory of demand

Total effect = income effect + substitution effect. Because of the decrease in price increases in qx consumed. Substitution effect: because of the decrease the price X increasing in purchasing power. Income effect: income and substitution effect.

Hicks: initial indifference curve tangent to the budget line. Engel curve X normal good. Initial utility level restoring. If the slope is positive, good is normal consumed more as income rises. If the slope is negative, good is inferior consumed less as income rises.

Slutsky: initial utility level passing from budget line. Initial purchasing power restoring. The IE increase outweighs where SE over the region slopes upward. The labor supply curve L: leisure outweighs SE where the IE over the region backward but bends Y: composite good.

Backward-bending supply curve, labor and leisure, w: hourly wage for labour. T0: total number of hours. Daily income: w (T0 - L).

4 choice of labor and leisure

For buy a unit y of work reduces the amount of the increase in w. Substitution effect. This leads to w/py= slope. Income effect. Composite good.

Positive on labour supply. Substitution effect and income. Budget constraint. Budget line: all combinations substitution effect effect hours of leisure. Negative leisure. Negative of labour supply. Income effect positive leisure > higher quantities composite goods.

Wage rate increases, so budget line increases and optimal choice changes.

Lottery

Any event for which the outcome is uncertain. Next year 3 things will happen: EV of a lottery. Lottery between - its value could go up by.