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:
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
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
What Are We Doing in this Chapter? We expand our basic consumer choice framework to include the possibility that consumers can sell something to generate income. Again, in terms of theoretical framework, nothing is new
The Purpose of this Chapter To begin to understand the art of building an economic model To begin to understand three basic elements of modeling in economics: –Purpose –Simplification through assumptions –Value judgment
Main Issue A state-contingent consumption plan Preferences Under Uncertainty and Expected utility Risk-aversion, risk-loving, and riskneutrality Competitive Insurance
