Structure Describing technologies Production set or technology set Production function Isoquant Marginal product Returns to scale Technical rate of substitution Well-behaved technologies Long run and short run

Structure State contingent consumption (依情 形而定的消费） State-contingent budget constraint Preferences under uncertainty Choice under uncertainty Risk aversion Diversification and risk spreading

Structure When to sell an asset? –Rate-of-return Arbitrage Taxation of asset returns Applications Financial intermediaries

Effects of a Price Change What happens when a commodity’s price decreases? –Substitution effect (替代效应）: the commodity is relatively cheaper, so consumers substitute it for now relatively more expensive other commodities

Contents Describe budget constraint –Algebra –Graph Describe changes in budget constraint Government programs and budget constraints Non-linear budget lines

Contents Describe preferences Indifference curves Well-behaved preferences Marginal rate of substitution

Revealed Preference Analysis Suppose we observe the demands (consumption choices) that a consumer makes for different budgets. This reveals information about the consumer’s preferences. We can use this information to

Structure Definition When to provide a public good – Efficient provision – Private provision: free-riding Variable quantities of public good – Efficient amount – Free-riding problem How to provide public goods? Demand revelation

Now Add Production ... Add input markets, output markets, describe firms’ technologies, the distributions of firms’ outputs and profits … That’s not easy!

Contents Dominant strategy Nash equilibrium Prisoner’s dilemma and repeated games Multiple equilibria and sequential games Pure and mixed strategies