Intermediate Microeconomics Econ 301

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Intermediate MicroeconomicsEcon 301

• Instructor Marek Weretka
• Course Description
• Textbook
• Grading
• Attitude (no pain no gain, interactive)
• Rules
• Please contact me after class
• Mc Burney students
• Not registered students

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Roadmap

• Consumers, Producers, Market Failures
• 1) Consumers
• - Budget set
• - Preferences and Utility
• - Optimal Choice and Equilibrium
• - Applications (Labor Market, Finance, )
• 2) Producers
• - Technology
• - Optimal Choice (Profit Maximization)
• 3) Market Failures
• - Monopoly and Oligopoly
• - Other (Externalities, Public Goods)

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Rationality in Economics

• Behavioral PostulateA decisionmaker chooses its
  most preferred alternative from the set of
  affordable alternatives.
• Budget set affordable alternatives
• To model choice we must have decisionmakers
  preferences.

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L01

• Budget Set

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Consumers Commodity space

• Commodity (apples, oranges, cars etc)
• A Consumption Bundles
• Math Consumption bundle is a vector
• Commodity Space - the set of all consumptions
  bundles
• Budget set - set of all consumption bundles that
  are affordable given prices and income

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Commodity Space Geometry, 2 goods
x2 (Oranges)
x1
(Apples)
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Budget Set all affordable bundles

• Affordable Bundle?
• (1,1),(2,2),(3,3)
• Budget constraint
• Budget set all affordable bundles

p12 p21 m6
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Budget Set and Real Income
x2
p12 p21 m6
x1
EI Real income income in terms of
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Slope (Real Price)
x2
p12 p21 m6
x1
EI Real price is a price of an apple in terms of
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Budget Constraints 3 goods

• If n 3 what do the budget constraint and the
  budget set look like?

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Budget Set

• Budget set depends on prices and income
• What happens to the budget set if
• income changes?
• one of the prices changes?
• Effects of Inflation, taxes

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Income goes down
x2
p12 p21
m6 m4
x1
What happens
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Oranges more expensive
x2
p12 M6
p21 p22
x1
What happens
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Inflation and Budget set

• Inflation 100

p12 p21 m6
x2
x1
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Ad Valorem Tax

• Tax rate t100

p12 p21 m6
x2
Effective prices
x1
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The Food Stamp Program

• Food stamps are coupons that can be legally
  exchanged only for food.

x2
p12 p21 m600
F2 apples Black Market
x1
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Budget Set with

• Minimal Purchase
• Maximal Purchase (Rationing)
• Quantity discount