, Microeconomics 2
-
Lecture 1-
n
1 -
Consumer Theory buying only :
slope
2
goods :
quantities (x1 x2) . , prices :
(p1 P2),
"
Doslope
budget : m PiX + P2X2 =
M
·
,
preferences :
utility function u (xe , X2) 0 .
·
behavior :
Max.. (x1 Xa) ,
O
by Langrange
A Solve
*
slope of indifference curve slope of
budget line
MRS--M
* -
demand functions : X :* (p ., pa m),
S interested in in price income affect demand
we are how
changes p ,,
i 1.2 and i
=
2-Buying
Exchange :
and
Selling goods
⑭
- if else sell
you buy ,
someone must
-consumption for one , is income for the other
-price changes affect price of consumption but also the value of what someone else is selling
.
Consumer has initial endowments (w ., wa) of
goods
-
budget constraint : Pixe +
P2X2
=
DeWetpaNa
>
-
net demands :
Pr(x1 -we) +
P2(X2 wa) - = 0
(seller) i
P : (x : -wi) ((0
buyer
>
net of
-
:
* endowments are on
budget line !
, Effects of changes :
-
change in values of endowments at fixed prices :
Pew-+ Pala Pewn't Pewa'
in budget : line
acts like change t in
>
-
a
budget
a
inferior !
is normal
G
>
-
effect depends on whether the
good
* Change in price : main differences with basic case of fixed
budget m ,
ex :
ecrease in pe , fixed (w was ,
⑨ eger M fixed Kalirsa :
① outward rotation of budget line
② crosses vertical axes still at the same point
I
① with (We , was rotation of budget line in the point (wi we
.
>
-
buyer in initial situation faces lower price , buyer remains buyer
initial situation
-seller in
may
become
buyer
additional income effect effect
-
Cordinary and endowment income
-
original choice : A
-
new Choice (final Choice) : C
-
total effect :
from A to B
(budget line runs through of choice at)
new prices
-
ordinary income effect :
from B to D
-endowment income effect :
from D to C
3-Exchange
What if there are 2 individuals ? How will exchange take place ? Determination of prices ?
Endowments ? Production ?
-
, Exchange
3
so far : choices from perspectives of 1 individual What if there are I individuals ?
-fixed prices pe & pa -
determination of prices ?
-given endowments we & we -
endowments ? production?
1 Pure
exchange ( Coordination Central)
=
,
2 persons A &B 2 1 &2
↑ , , goods ,
- endowments :
(Wa , wa
?
) & (wis & wis)
-consumption bundles :
Xa =
( X) , , XB =
(Xi ,
XP)
-
exchange : endowments - consumption bundles
-
feasible allocations :
X + Xig =
Wp +
Wis and X + X =
wa + w
* Edgeworth box :
graphical tool to depict exchange opportunities
on the axis : 2
goods
·
* indifference curves of person A & upside down those
of person
axis equal feasible
*
length : to total endowments - all
allocations are in the Dox
>
-
drawing the
Edgeworth box :
length determined by
1 the axes
graph total endowments
.
-
.
2 indicate the endowents allocations
3 . draw indifference curves
(everything upside down for person B !)
* ** Person B upside down => more consumption for A means less for B !!! (vice versa)
-
Lecture 1-
n
1 -
Consumer Theory buying only :
slope
2
goods :
quantities (x1 x2) . , prices :
(p1 P2),
"
Doslope
budget : m PiX + P2X2 =
M
·
,
preferences :
utility function u (xe , X2) 0 .
·
behavior :
Max.. (x1 Xa) ,
O
by Langrange
A Solve
*
slope of indifference curve slope of
budget line
MRS--M
* -
demand functions : X :* (p ., pa m),
S interested in in price income affect demand
we are how
changes p ,,
i 1.2 and i
=
2-Buying
Exchange :
and
Selling goods
⑭
- if else sell
you buy ,
someone must
-consumption for one , is income for the other
-price changes affect price of consumption but also the value of what someone else is selling
.
Consumer has initial endowments (w ., wa) of
goods
-
budget constraint : Pixe +
P2X2
=
DeWetpaNa
>
-
net demands :
Pr(x1 -we) +
P2(X2 wa) - = 0
(seller) i
P : (x : -wi) ((0
buyer
>
net of
-
:
* endowments are on
budget line !
, Effects of changes :
-
change in values of endowments at fixed prices :
Pew-+ Pala Pewn't Pewa'
in budget : line
acts like change t in
>
-
a
budget
a
inferior !
is normal
G
>
-
effect depends on whether the
good
* Change in price : main differences with basic case of fixed
budget m ,
ex :
ecrease in pe , fixed (w was ,
⑨ eger M fixed Kalirsa :
① outward rotation of budget line
② crosses vertical axes still at the same point
I
① with (We , was rotation of budget line in the point (wi we
.
>
-
buyer in initial situation faces lower price , buyer remains buyer
initial situation
-seller in
may
become
buyer
additional income effect effect
-
Cordinary and endowment income
-
original choice : A
-
new Choice (final Choice) : C
-
total effect :
from A to B
(budget line runs through of choice at)
new prices
-
ordinary income effect :
from B to D
-endowment income effect :
from D to C
3-Exchange
What if there are 2 individuals ? How will exchange take place ? Determination of prices ?
Endowments ? Production ?
-
, Exchange
3
so far : choices from perspectives of 1 individual What if there are I individuals ?
-fixed prices pe & pa -
determination of prices ?
-given endowments we & we -
endowments ? production?
1 Pure
exchange ( Coordination Central)
=
,
2 persons A &B 2 1 &2
↑ , , goods ,
- endowments :
(Wa , wa
?
) & (wis & wis)
-consumption bundles :
Xa =
( X) , , XB =
(Xi ,
XP)
-
exchange : endowments - consumption bundles
-
feasible allocations :
X + Xig =
Wp +
Wis and X + X =
wa + w
* Edgeworth box :
graphical tool to depict exchange opportunities
on the axis : 2
goods
·
* indifference curves of person A & upside down those
of person
axis equal feasible
*
length : to total endowments - all
allocations are in the Dox
>
-
drawing the
Edgeworth box :
length determined by
1 the axes
graph total endowments
.
-
.
2 indicate the endowents allocations
3 . draw indifference curves
(everything upside down for person B !)
* ** Person B upside down => more consumption for A means less for B !!! (vice versa)
