1. RL3
Review

2. 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

3. 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)

4. 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

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

6. Insurance: Budget set

7. Insurance: Preferences

8. Insurance: Choice

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

10. 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

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

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

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

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

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

16. The End
Thank you and good luck