1. RL1 Review

2. u A decisionmaker chooses its most preferred alternative from the affordable ones. u Budget set u Preferences (Utility) u Choice (Demand)

3. Budget set u Budget set: given a) Write down budget constraint b) Illustrate it geometrically (numbers) c) Interpret the slope (econ. and geom.) d) Changes: Price and Income e) Modifications: e.g. Taxes, Subsidies, Gifts

4. Budget set Graph, Slope, Price and Income Change Taxes, Subsidies, Gifts

5. Preferences u Preferences: ranking of bundles u Geometric representation – indifference c. u Goods, Bads, Satiated preferences (slopes) u Four examples of preferences –Cob-Douglass –Perfect Complements –Perfect Substitutes –Quasilinear u Utility and MRS u Monotone transformations

6. Preferences (4 examples) MRS (find, interpret, 0.000001)

7. Choice – well behaved preferences u Given and u Note: can be parameters u Find optimal choice on the graph u Secrets of happiness –Geometric interpretation –Economic Interpretation u Analytical solution u Magic formulas

8. Choice $ $ $$$ $ $$ $$

9. $ $ $$$ $ $$ $$

10. Graph, optimality conditions, twist interiority!

11. Extreme preferences Graph, optimality conditions, twist interiority, !

12. Magic formulas

13. Behavior of the demand u Own – price change: Ordinary or Giffen u Income change: Normal or Inferior u Demand and Engel Curve Plot and find them analytically (four examples of preferences) u Other good price change: Gross Substitutes or Complements

14. Own-price change u TCH=SE+IE u Interpretation u Decomposition: Auxiliary budget line u Relation: Giffen - Inferior goods

15. Buying and selling u Nominal Income – endowment of goods u Budget set: buying selling u Changing prices u Price offer curve u Find net demands for extreme preferences!

16. Labor supply u Labor leisure choice u Budget set u Labor leisure Choice u Why labor supply is inelastic

17. Intertemporal choice u Abstract model = Two period model u Budget set (borrowing, saving) u Preferences (Discount factor and rate) u Choice: Consumption and Savings u Many periods u Annuity and Perpetuity formula u Aplications