RL3 Review

Exam Date: 5/9/16, 7:45-9:45 Room: Soc Sci 5206 Cumulative 2 hours (120 min) Closed book (calculators not needed) Format: Problems as in PS (no true false q) Preparation Master all PS and past exams Read slides Read book

Consumer’s Theory Elements of choice theory: Budget set Preferences (4 types): indifference map, MRS Choice (SoH, Magic formulas) Comparative statics Substitution and Income effect Ordinary and Giffen, Inferior and Normal goods Real endowments (buying and selling)

3 applications Labor markets - labor supply Intertemporal Choice: a) 2 periods: b) T periods: Uncertainty a) Lottery, Bernoulli and VNM utility b) Risk aversion c) Insurance

Insurance Standard problem Insurance problem: Lotteries No implicit markets No utility function

Insurance: Budget set

Insurance: Preferences

Insurance: Choice

Markets: Competitive Equilibrium Edgeworth Box Pareto Efficiency and Contract Curve Competitive Equilibrium First welfare theorem

Competitive Producers Technology RS, MPK, MPL Profit Maximization, Cost Minimization Cost functions, shapes for IRS, CRS and DRS Supply function (also with fixed costs) Equilibrium N firms free entry

Market Failures Market Power a) Monopoly: Choice, elasticity, markup, price discrimination b) Oligopoly (Duopoly Externalities and public goods Asymmetric information

Monopoly (2 benchmarks) No price discrimination First degree (perfect) price discrimination Monopolistic Behavior

Inefficiency Total potential surplus and DWL No price discrimination First degree (perfect) price discrimination Total potential surplus and DWL

Elasticity of a demand Measure of market competitiveness Definition Relation to MR Measure of market competitiveness

Elasticity: Implications Only elastic part of the demand relevant Elasticity and markup

The End Thank you and good luck