RL3
Review
Exam
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Date: 5/12/16, 12:25-2:25
Room: Bascom 165 (Last Name A-Q)
Education L196 (Last Name R-Z)
Cumulative
2 hours (120 min)
Closed book (calculators not needed)
Format: Problems as in PS (no true false q)
Preparation
1. Master all PS and past exams
2. Read slides
3. Read book
Consumer’s Theory
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Elements of choice theory:
a) Budget set
b) Preferences (4 types): indifference map, MRS
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Choice (SoH, Magic formulas)
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Comparative statics
a) Substitution and Income effect
b) Ordinary and Giffen, Inferior and Normal goods
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Real endowments (buying and selling)
3 applications
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Labor markets - labor supply
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Intertemporal Choice:
a) 2 periods:
b) T periods:
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Uncertainty
a) Lottery, Bernoulli and VNM utility
b) Risk aversion
c) Insurance
Insurance
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Standard problem
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Insurance problem:
- Lotteries
- No implicit markets
- No utility function
Insurance: Budget set
Insurance: Preferences
Insurance: Choice
Markets: Competitive Equilibrium
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Edgeworth Box
Pareto Efficiency and Contract Curve
Competitive Equilibrium
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First welfare theorem
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Competitive Producers
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Technology F ( K , L )
RS, MPK, MPL
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Profit Maximization, Cost Minimization
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Cost functions, shapes for IRS, CRS and DRS
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Supply function (also with fixed costs)
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Equilibrium
a) N firms
b) free entry
Market Failures
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Market Power
a) Monopoly: Choice, elasticity, markup, price
discrimination
b) Oligopoly (Duopoly
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Externalities and public goods
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Asymmetric information
Monopoly (2 benchmarks)
Monopolistic Behavior
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No price discrimination
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First degree (perfect) price discrimination
Inefficiency
Total potential surplus and DWL
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No price discrimination
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First degree (perfect) price discrimination
Elasticity of a demand
Measure of market competitiveness
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Definition
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Relation to MR
Elasticity: Implications
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Only elastic part of the demand relevant
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Elasticity and markup
The End
Thank you and good luck