Main Issue A state-contingent consumption plan Preferences Under Uncertainty and Expected utility Risk-aversion, risk-loving, and risk￾neutrality Competitive Insurance

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

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

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

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