The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine. an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions John Maynard Keynes

Information in Competitive Markets In purely competitive markets all agents are fully informed about traded commodities and other aspects of the market. What about markets for medical services, or insurance, or used cars?

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

What Are We Doing in this Chapter? We take a further look at the comparative statics of demand function with respect to prices; We divide the changes in demand due to price changes into two effects:

What Do We Do in This Chapter? We conduct comparative statics analysis of ordinary demand functions -- the study of how ordinary demands

What Do We Do in This Chapter? We create a mathematical measure of preference in order to advance our analysis

Where are We in the Course? We are working on the 1st of the 3 components of microeconomics: Consumer behavior, production theory, and market. There are three elements of consumer behavior: budget constraint, preference, and choices

Market Equilibrium A market is in equilibrium when total quantity demanded by buyers equals total quantity supplied by sellers

From Individual to Market Demand Functions Think of an economy containing n consumers, denoted by i = 1, … ,n. Consumer i’s ordinary demand function for commodity j is

Monetary Measures of Gains-to￾Trade You can buy as much rice as you wish at RMB1 per kilogram once you enter the gasoline market. Q: What is the most you would pay to enter the market?