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

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 Is the Question of the Chapter? Suppose we observe a collection of a consumer’s choices, can we discover his/her preference? Is this possible at all? If so, under what conditions is this possible? (This is the reverse question of finding the optimal choice)

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 studying the 1st of the three blocks of microeconomics: Consumer behavior, production theory, and market equilibrium Within the 1st block, we are working on the 2nd of the three components: choice set, preference, and consumer demand

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

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?

What Are We Doing in this Chapter? We apply our basic framework of consumer choice to study issues of choices across different time periods; Again, in terms of theoretical framework, not much 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 Mean-Variance Utility Budget Constraints for Risky Assets Measuring Risk Capital Asset Pricing Model