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Endowments and Allocations Consider first the case of a pure exchange economy. (One with no production). Suppose there are two consumers, A and B, in a two good economy. A starts with an endowment of ωA =
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Production — Oligopoly 1 Cournot Duopoly Suppose there are two firms in an industry. Their strategy spaces are quantities. Their payoffs are profits. Industry demand is given by the inverse demand function, P(Q), where industry production is Q = q1 + q2. They
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Production — Games 1 Monopolistic Competition Monopolistic competition arises when there are a large number of price-setting firms in an industry with free entry. Suppose there are n firms. In the short run, each firm faces an nth of the market demand curve
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Market Equilibrium A market is in equilibrium when total quantity demanded by buyers equals total quantity supplied by sellers
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What Do We Do in This Chapter? We create a mathematical measure of preference in order to advance our analysis
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What Do We Do in This Chapter? We conduct comparative statics analysis of ordinary demand functions -- the study of how ordinary demands
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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:
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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
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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
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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
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