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

Structure Market environments Market demand for a competitive firm Short-run supply decision Upward sloping MC curve Shut-down condition Long-run supply decision Comparing long-run and short-rundecisions. Producer’s surplus and profits

The Concept of Investment For a one period investment, the ROR can be evaluated each year. For investments that generate returns in many periods, there are two ways of describing the rate of return

OTHER GOOD Rebating a Consumption tax based on inder RTP initial consumption RTP budget constraint Baseline

Structure The cost minimization problem Average costs Returns to scale and total and average costs Short run and long run costs