Midterm 2 Review.

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Presentation transcript:

Midterm 2 Review

Midterm 2 (L9-L14) Applications of buying and selling Labor Supply Intertemporal Choice Uncertainty Markets and Exchange Pareto (In) efficiency Competitive equilibrium First Welfare Theorem

Applications

Uncertainty Two states, probabilities Bundle = lottery Bernouli and Von Neumann-Morgenstern U. Examples:

Risk Aversion (definition) Expected value of lottery: Examples Risk aversion better than

Risk Attitude

Uncertainty: Insurance Possibility of Flood Insurance contract Budget set

Uncertainty: Insurance Choice:

(Not) Fair Insurance Premium

Markets and Exchange (key ideas) Edgeworth Box (apple-orange, IC, U) Pareto Efficiency Competitive Equilibrium Competitive Equilibrium Pareto efficient?

Edgeworth Box (and Efficiency)

Pareto Efficiency and Contract Curve

Competitive Equilibrium (Definition)

Competitive Equilibrium

Competitive Equilibrium (Geometry)

Competitive E and Pareto Efficiency