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Microeconomics 2. John Hey. Module Representatives. Athena Fu Emma Wilson-Young Krishna Patel Liz Blum Michaela Lucas Kenny Yang. Office hours. Mine are now decided: John Hey: Wednesdays 2.30 to 4.30 The TFs have still to decide theirs. Dan Howdon: James Lomas: Dominic Spengler:.

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Presentation Transcript
module representatives
Module Representatives
  • Athena Fu
  • Emma Wilson-Young
  • Krishna Patel
  • Liz Blum
  • Michaela Lucas
  • Kenny Yang
office hours
Office hours
  • Mine are now decided:
  • John Hey: Wednesdays 2.30 to 4.30
  • The TFs have still to decide theirs.
  • Dan Howdon:
  • James Lomas:
  • Dominic Spengler:
slide4
Note
  • Note that we are at present doing static (one-period) analysis without production:
  • People are born, have given preferences and endowments, trade them in markets for a preferred bundle of goods, consume the preferred bundle...
  • ... and die. End of story.
  • We also assume that preferences are given.
chapters lectures 3 and 4
Chapters/Lectures 3 and 4
  • These lectures are very similar: Lecture 3 deals with a discrete good and Lecture 4 with a continuous good.
  • In both we will be operating with two graphical spaces:
  • For indifference curves, with money on the vertical axis and the quantity of some good on the horizontal axis.
  • For demand and supply curves, with the price of the good on the vertical axis and the quantity of the good on the horizontal.
  • Note the units of the variables on the axes (in 1: £ on the vertical and number of units on the horizontal; in 2: £/unit on the vertical and number of units on the horizontal).
chapter 2
Chapter 2
  • We introduced the following concepts:
  • Reservation price.
  • Surplus/profit.
  • Competitive equilibrium (in which there is a price at which the demand equals the supply).
  • We have shown (in a special case) that in a competitive equilibrium the total surplus is maximised.
chapter 2 definitions and results
Chapter 2: definitions and results
  • The reservation price for a buyer ...
  • ...is the maximum price that he or she is willing to pay.
  • The reservation price for a seller ...
  • ... is the minimum price that he or she would accept.
  • The surplus of a buyer is …
  • … the area between the price paid and the demand curve.
  • The surplus of a seller is …
  • … the area between the price received and the supply curve.
chapter 3
Chapter 3
  • We prove these results in a particular context.
  • We introduce the important concepts of indifference and an indifference curve.
  • We work today with a discrete good, that is a good that can be bought or sold only in integral units.
  • We work today with a particular kind of preferences – which are called quasi-linear preferences.
  • Later we consider generalisations.
assumptions about preferences
Assumptions about preferences
  • The individual starts with 3 units of some good and 30 units of money (this is his or her endowment).
  • His or her reservation price for the first unit bought is £5…
  • …for the second unit bought is £3…
  • …for the third unit bought is £2.
  • His or her reservation price for the first unit sold is £10…
  • .for the second unit sold is £30.
  • Would not sell a third unit (reservation price is infinite) and would not buy a fourth unit (reservation price is zero).
  • Let us go the Maple/html file.
what we have done discrete good
What we have done (discrete good)
  • We have worked with quasi-linear preferences – where indifference curves are parallel in a vertical direction.
  • We have proved that
  • The surplus of a buyer is …
  • … the area between the price paid and the demand curve.
  • The surplus of a seller is …
  • … the area between the price received and the supply curve.
chapter 31
Chapter 3
  • Goodbye!