summary-book-intermediate-microeconomics-hal-r-varian-complete

Optimization principle: People try to choose the best patterns of consumption that they can afford The equilibrium principle: Prices adjust until the amount that people demand of something is equal to the amount that is ...

Optimization principle: People try to choose the best patterns of consumption that they can afford The equilibrium principle: Prices adjust until the amount that people demand of something is equal to the amount that is supplied Competetive market: Demand curve & Supply curve  Market equilibrium P* Monopoly  Normal monopolist: Picks prices with biggest revenue box (fig 1.7 p13) (Discriminating monopolist: different prices) Excess demand (Pmax )e.g. : rent control. Pareto improvement: A way in which someone gets better off without any other party worse. If an allocation calls for a Pareto improvement: Pareto inefficient. If the allocation cannot be improved: Pareto efficient. Chapter 2 Budget constraint  Consumption bundle (x1 , x2) = The set of goods a consumer can choose to consume from where p1, p2 are the prices. M = the money the consumer has to spend. The budget constraint is: ?1?1 + ?2?2 ≤ m. X2 = can be used as composite good (everything else the consumer buys) Budget set = All bundles ≤ ?. (area left of the line) Budget line slope = − ?1 ?2 Budged line = Set of bundles that cost exactly m (the line): ?1?1 + ?2?2 = m The budged line can be rewritten as: ? = ? − ?1 ?  if x = 0 everything of m is used for x . 2 ?2 ?2 1 1 2 Two formulas given: Budget line before change: ?1?1 + ?2?2 = m Change of consumption: ?1(?1 + ∆?1) + ?2(?2 + ∆?2) = ? gives: ? ∆? + ? ∆? = 0 → ∆?2 = − ?1 1 1 2 2 ∆?1 ?2 Slope measures opportunity cost. (of consuming good 1) Income increase  Budget Line shifts outwards parallel Price increase  Budget line becomes steeper Numaire price  Relative price to which we are measuring the other price and income: e.g: ? ? + ? ? = m → p1 ? + ? ? = → ?e?e ? i? e???? ?o 1 1 1 2 2 ?2 1 2 ?2 2 ?1 ? + ?2 ? = 1 ?e?e ? i? e???? ?o 1 ? 1 ? 2 ..................................................................CONTINUED.................................................