王则柯微观经济学教学大纲.docx

王则柯微观经济学教学大纲.docx

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王则柯微观经济学教学大纲

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MICROECONOMICS（3credits,asof2002）

ClassroomLectureNotes（Asaminimum）

By

WangZeke

Lnswzk@

Basedon

IntermediateMicroeconomics,byHalR.Varian,FifthEdition,

referringto

PriceTheoryandApplications,byJackHirshleiferandAmihaiGlazer,

FourthEdition.

You¡¯dbettertothinkitastheFirststepofacademictraininginEconomics

Tips:

Essentialcontentsaremainlyatornearfigures

Payattentiontographicallyproblem-solving

Wewillfocusonshort-runstudy,andleaveyoudiscretecases

Chapter0Economics

Thesourceofalleconomicproblemsisscarcity.Thusproblemsoftrade-off,andchoice.Economics,asawayofthinking,asadismalscience.Problems-solutions-hiddenconsequences.

Maindecision-makingagents:

individuals（household）,firms,andgovernments.

Objectsofeconomicchoicearebasicallycommodities,includinggoodsandservices.

Maineconomicactivities:

consumption,production,andexchange.

Microeconomicsandmacroeconomics:

toshowtheinvisiblehandandtosupplementit.

Thecircularflowofeconomicactivities.Theproductmarketandthefactormarket.

Themarketrelationismutualandvoluntary.

Positiveissuesandnormativeissues.

Marginalanalysis.Relationsbetweentotal,average,andmarginalmagnitudes:

MMistheslopeoftheTMcurve;

AMistheslopeoftherayfromtheorigintothepointattheTMcurve.

Thus,1,TMincreasing（decreasing）ifandonlyifMM>0（MM<0）;

2,IfTMisatmaximumorminimum,thenMM=0;

and3,AMincreasing（decreasing）ifandonlyifMM>AM（MM

4,IfAMisatmaximumorminimum,thenMM=AM,OrMMcutsAMatthelatter¡¯smaximumorminimum.

Chapter1TheMarket

Theoptimizationprinciple:

Peopletrytochoosewhat¡¯sbestforthem.

Theequilibriumprinciple:

Pricesadjustuntildemandandsupplyareequal.

Thedemandcurve:

acurvethatrelatesthequantitydemandedtoprice.

Thereservationprice:

one¡¯smaximumwillingnesstopayforsomething.

Frompeople'sreservationpricestothedemandcurvebyhorizontalsummation.

Similarly,thesupplycurve.

Theirintersectionisthemarketequilibrium.（Acompetitivemarket）

Comparativestaticsisthestudyofhowtheequilibriumpriceandquantitychangewhentheunderlyingconditionschanges.Theceterisparibusprinciple.

Paretoefficiency:

aconcepttoevaluatedifferentwaysofallocatingresources.

AParetoimprovementisachangetomakesomepeoplebetteroffwithouthurtinganybodyelse.AneconomicsituationisParetoefficientorParetooptimalifthereisalreadynowaytomakeParetoimprovement.

Equilibriaintheshortrun（somefactorsareunchanged）andinthelongrun.

Chapter2BudgetConstraint

Twogoodsareoftenenoughtodiscuss.Thebudgetconstraint:

p1x1+p2x2¡Üm.

Thebudgetlineandthebudgetset（themarketopportunityset）.Fig.

Theslopeofthebudgetline:

dx2/dx1=¨Cp1/p2.

Howthebudgetlinechangeswhenincomeincreases,orwhenapriceincreases.Figs.

Rationing.It¡¯seffectsonthebudgetset.Fig.

Chapter3Preferences

Considerrationalagentsandtheirstablepreferences.

Bundlexisstrictlypreferred（s.p.）,orweaklypreferred（w.p.）,orindifferent（ind.）,toBundley.（Ifxisw.p.toyandyisw.p.tox,wesayxisindifferenttoy.）

AssumptionsaboutPreferences:

Completeness:

xisw.p.toyoryisw.p.toxforanypairofxandy.

Reflexivity:

xisw.p.toxforanybundlex.

Transitivity:

Ifxisw.p.toyandyisw.p.toz,thenxisw.p.toz.

Theindifferencesets,theindifferencecurves.Fig.Theycannotcrosseachother.

Perfectsubstitutesandperfectcomplements.Goods,bads,neutrals.Satiation.Figs.

Well-behavedpreferencesaremonotonic（meaningmoreisbetter）andconvex（meaningaveragearepreferredtoextremes）.Figs.

Themarginalrateofsubstitution（MRS）measurestheslopeoftheindifferencecurve.MRS=dx2/dx1.Itisthemarginalwillingnesstopay（howmuchtogiveupofx2toacquireonemoreofx1）.Usuallynegative.Fig.

Convexindifferencecurvesexhibitadiminishingmarginalrateofsubstitution.Fig.

Chapter4Utility,asawaytodescribepreferences

Essentialordinalutilities,versusconvenientcardinalutilityfunctions:

u（x）¡Ýu（y）ifandonlyifbundlexisw.p.tobundley.Fig.

Theindifferencecurvesaretheprojectionsofcontoursoftheu=u（x1,x2）.Fig.

Utilityfunctionsareindifferentuptoanystrictlyincreasingtransformation.

Examplesofutilityfunctions:

u（x1,x2）=x1x2;u（x1,x2）=x12x22;Fig.

u（x1,x2）=ax1+bx2（perfectsubstitutes）;Fig.

u（x1,x2）=min{ax1,bx2}（perfectcomplements）.Fig.

Quasilinearpreferences:

allindifferencecurvesarevertically（orhorizontally）shiftedcopiesofasingleone,forexampleu（x1,x2）=v（x1）+x2.Fig.

Cobb-Douglaspreferences:

u（x1,x2）=x1cx2d,oru（x1,x2）=x1ax21-awitha=c/（c+d）;andtheirlogequivalents:

u（x1,x2）=clnx1+dlnx2,oru（x1,x2）=alnx1+（1¨Ca）lnx2.Fig.

Marginalutilities,andMRSalonganindifferencecurve.

DeriveMRS=¨CMU1/MU2bytakingtotaldifferentialalonganyindifferencecurve.

Chapter5ChoiceofConsumption

Optimalchoiceisatthepointinthebudgetlinewithhighestutility.

Thetangencysolutionofanindifferencecurveandthebudgetline:

MRS=¨Cp1/p2.Fig.

Basicequations:

MU1/p1=MU2/p2andp1x1+p2x2=m.（howifnegativesolutions）

Interiorandboundary（corner）solutions.Kinkytastes.Multipletangencies.Figs.

Threeapproachestothebasicequations:

Graphical（Tangency）;As-one-variable;and*Lagrangian.

Theoptimalchoiceistheconsumer¡¯sdemandedbundle.Thedemandfunction.

Examples:

perfectsubstitutes,perfectcomplements,goods,bads,andneutrals,convexandconcavepreferences,Codd-Douglasdemandfunctions.Figs.

Chapter6Demand

Demandfunctions:

x1=x1（p1,p2,m）,x2=x2（p1,p2,m）.

Inferiorandultra-superiorgoods（byincome）;Fig.

Luxuryandnecessarygoods（byincome）.Fig.

NormalandGiffengoods（byprice）.Fig.

Theincomeexpansionpathortheincomeoffercurves（x1-x2plane）,andtheEngelcurve（m¨Cx1plane）.Figs.

Thepriceoffercurve（x1-x2plane）andthedemandcurve（p1¨Cx1plane）.Figs.

Substitutesandcomplements.Codd-Douglaspreferences.Quasilinearpreferences.

Example:

Quasilinearpreferencesleadtovertical（horizontal）incomeoffercurvesandvertical（horizontal）Engelcurves.

Chapter8SlutskyEquation

Howtheoptimummoveswhenthepriceofagoodchanges?

Decomposition:

thetotaleffect=thesubstitutioneffect+theincomeeffect.

Thepivotgivesthesubstitutioneffect,theshiftgivestheincomeeffect.

Slutskydecomposition,pivotingthebudgetlinearoundtheoriginalchoice.Fig.

Hicksdecomposition,pivotingthebudgetlinearoundtheindifferencecurve.Fig.

Thelawofdemand.Choosingtaxes.（Fig.5.9）

Chapter9BuyingandSellingforaconsumerwithanendowment¦Ø

Offercurveanddemandcurve.Afigurereview.

Laborsupply.Agraphicaldiscussion.

Chapter12Uncertainty

Utilityfunctionsandprobabilities.Expectedutilityfunctions,orvonNeumann-Morgensternutilityfunctions:

EU=¦²ipiU（si）,wherepiistheprobabilitytheeventsioccurs.

Theyareindifferentuptoanypositiveaffinetransformation.

Riskaversionandriskloving.Concavevsconvexutility.Thesecondderivative.

Chapter14Consumer¡¯sSurplus

Demandforadiscretegood.Reservationpricesandconsumer¡¯ssurplus.Fig.

Producer¡¯ssurplus.Fig.Calculatinggainsandlosses.Thewater-diamondparadox.

Chapter15MarketDemand

Addingupdemandcurves:

thehorizontalsummationprinciple.Fig.

Thepriceelasticityofdemand:

¡¡¡¡¡¡¡¡¦Å=（¦¤q/q）/（¦¤p/p）=（p/q）/（¦¤p/¦¤q）,or

¡¡¡¡¡¡¡¡¦Å=（dq/q）/（dp/p）=（p/q）/（dp/dq）.

Itisnormallynegative.So,veryoftenpeopleturntoconsideritsabsolutevalue|¦Å|.

Acommodityhasanelastic（inelastic,unit）demandif|¦Å|>1（|¦Å|<1,|¦Å|=1）.

¡¡¡¡¡¡¡¡Elasticityandrevenue.R=pq,dR=qdp+pdq,andthen

¡¡¡¡¡¡¡¡dR/dp=q[1+¦Å（p）]where¦Å（p）=（pdq）/（qdp）.Fig.

Similarly,MR=dR/dq=p（q）[1+1/¦Å（q）]where¦Å（q）=（pdq）/（qdp）.

Strikesandprofits.TheLaffercurve.

Constantelasticitydemands.Anotherwaytoexpresselasticity:

¦Å=dlnq/dlnp.

Theincomeelasticityofdemand¦Ç.Withp1x1+p2x2=m,wehave1=p1dx1/dm+p2dx2/dm=s1¦Ç1+s2¦Ç2,wheresiistheexpenditureshareofgoodi.

Thearcelasticityvsthepointelasticity.

Chapter16PartialEquilibrium

Themarketsupplycurve.Acompetitivemarket.Theequilibrium.Paretoefficiency.Fig.

Marketsurplusandmarketshortage.Fig.Shortageisnotscarcity.

Twospecialcases:

ofaverticalsupplyandofahorizontalsupply.Figs.

Algebraoftheequilibrium:

D（p）=S（p）.Comparativestatics.Shiftingbothcurves.

Taxes.DistinguishPp,thepricepaidbyconsumers,Pr,thepricereceivedbyproducers,Pl,thelistprice,andPo,theoriginalprice.

Thetwowaystoanalyzetheeffectofatax（imposedondemandorimposedonsupply）areequivalent.

Algebraoftheequilibriumwithatax:

D（pp）=S（pr）,andpp=pr+T.

Whobearstheburdenofatax?

Theonewithlesselasticitysharesmoreburden.

Passingalongatax.Thedeadweightlossofatax.Figs.

Asubsidyistheoppositeofatax.

Chapter18Technology

Thesefourchaptersfocusmainlyonresourceallocationinsiderfirms.

Inputsandoutputs.Factorsofproduction:

land,labor,capital,rawmateri