1. Intermediate Microeconomics Econ 301
Instructor: Marek Weretka
Course Description
Textbook
Grading
Attitude (no pain no gain, interactive)
Rules
Please contact me after class
Mc Burney students
Not registered students

2. Roadmap Consumers, Producers, Market Failures 1) Consumers
- Budget set
- Preferences and Utility
- Optimal Choice and Equilibrium
- Applications (Labor Market, Finance, )
2) Producers
- Technology
- Optimal Choice (Profit Maximization)
3) Market Failures
- Monopoly and Oligopoly
- Other (Externalities, Public Goods)

3. Rationality in Economics
Behavioral Postulate: A decisionmaker chooses its most preferred alternative from the set of affordable alternatives.
Budget set = affordable alternatives
To model choice we must have decisionmaker’s preferences.

4. L01
Budget Set

5. Consumers: Commodity space
Commodity (apples, oranges, cars etc)
A Consumption Bundles
Math: Consumption bundle is a vector
Commodity Space - the set of all consumptions bundles
Budget set - set of all consumption bundles that are affordable given prices and income

6. Commodity Space: Geometry, 2 goodsx2
(Oranges) x1
(Apples)

7. Budget Set =all affordable bundles
(1,1),(2,2),(3,3)
Budget constraint
Budget set: all affordable bundles
p1=$2
p2=$1
m=$6

8. Budget Set and Real Incomex2
p1=2
p2=1
m=6 x1
EI: Real income = income in terms of

9. Slope (Real Price) x2 p1=2 p2=1 m=6 x1
EI: Real price is a price of an apple in terms of

10. Budget Constraints: 3 goods
If n = 3 what do the budget constraint and the budget set look like?

11. Budget Set Budget set depends on prices and income
What happens to the budget set if
income changes?
one of the prices changes?
Effects of Inflation, taxes

12. Income goes down x2
p1=2
p2=1
m=6
m=4 x1
What happens:

13. Oranges more expensive
What happens:

14. Inflation and Budget set
p1=2
p2=1
m=6 x2 x1

15. Ad Valorem Tax
Tax rate t=100%
p1=2
p2=1
m=6 x2
Effective prices x1

16. The Food Stamp Program
Food stamps are coupons that can be legally exchanged only for food. x2
p1=2
p2=1
m=600
F=2 apples
Black Market x1

17. Budget Set with Minimal Purchase Maximal Purchase (Rationing)
Quantity discount