RL3 Review

Exam Date: 05/10/15 5:05-7:05 Room: Lecture 1 (1:00): Van Vleck B102 Lecture 2 (2:30): Birge 145 Cumulative 2 hours (120 min) Closed book (calculators not needed) Format: Problems as in PS (no true false q) Course Grade: 25-20-20-35, Curve! 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: Budget set

Insurance: Preferences

Insurance: Choice

Insurance: Full versus Partial insurance

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

Cost curves

Individual Supply

Equilibrium N firms

Equilibrium with free entry

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

N firmsm, demand cost function Oligopoly N firmsm, demand cost function