1、MICROECONOMICSClassroom Lecture Notes (3 credits, as of 2004)1based on Hal R. Varians Intermediate MicroeconomicsIntermediate Microeconomics, Sixth Edition, referring to Pindyck and Rubinfelds MicroeconomicsMicroeconomics, Fourth Edition. 23The source of all economic problems is scarcityscarcity. 4P
2、roblem of trade-offtrade-off, and choice. Economics, as a way of thinkinga way of thinking, as a dismal science. Problems - solutions - hidden consequences. 51 1 individualsindividuals (household), 2 2 firmsfirms, and 3 3 governmentsgovernments.6Objects of economic choice are including goodsgoods an
3、d servicesservices.7ConsumptionConsumption, ProductionProduction, and ExchangeExchange. .8to show the market mechanism (the invisible invisible hand)hand), to supplement it.9product market factor market10 The market relation is mutual and voluntary. P o s i t i v e i s s u e sP o s i t i v e i s s u
4、 e s a n d normative issuesnormative issues.11lRelations between lT Total otal mmagnitudesagnitudes, lA Average verage mmagnitudesagnitudes, and lMMarginal arginal mmagnitudes.agnitudes.121 1, MM is the slope of theslope of the TM curvecurve;2 2, AM is the slope of the rayslope of the ray from the o
5、rigin to the point at the TM curve; TMMM(x*)AM(x*)x*x13 3 3, TM increasing (decreasing) if and only if MM 0 ( MM AM ( MM 0. lThus both the income offer curves and the Engel curves are all rays through the origin. 76lExampleExample:lQuasilinear preferences lead to vertical (horizontal) income offer c
6、urves andvertical (horizontal) Engel curves.77Slutsky Equation78lHow the optimum moves How the optimum moves when the price of a good when the price of a good changes?changes? 79lDecompositionDecomposition: lthe total effect = the substitution effect + the income effect.l p139 80lThe pivotpivot give
7、s the substitution effect, lthe shiftshift gives the income effect.lP103andp13781lSlutsky identitySlutsky identity, pivoting the budget line around the original choice. Fig.lHicks decompositionHicks decomposition, pivoting the budget line around the indifference curve. Fig.82Buying and Selling for a
8、 consumer with an endowmentendowment 83 x1x1x2p11111Net and gross demands, net supply. Offer curve and demand curve.p16484lL a b o r s u p p l yL a b o r s u p p l y p174$Leisure RLaborWLeisureE E85Intertemporal Choice86lSuppose for example in a 3-period model,the consumption is ck and the interest
9、rate is rk in period k, lthen the present valuepresent value of the consumptions is lc1 + c2 / (1+r1) + c3 / (1+r1) (1+r2).lp19087Uncertainty88lExpected utility functionsExpected utility functions, or von Neumann-Morgenstern von Neumann-Morgenstern utility functions utility functions. lThey are indi
10、fferent up to la n y p o s i t i v e a f f i n e transformation.l(affine transformation: y = a + bx).89lRisk aversionRisk aversion and risk loving.Concave vs convex utility.The second derivativessecond derivatives.$UU9091Net Surplus 1 2 3 4 5 6 p p r1r2r3r4 r5r6Consumers Surplus p250消费者得益总收益92Produc
11、ers surplusSupply curveQP*Q*P93Q QSupply curveChange in producers surplusRTQQPPP94PdPwQ95Change in consumers surplusBT96979899+=100PRICEDEMAND CURVED(p)QUANTITYIt is the sum of the individual demand It is the sum of the individual demand curvecurveThe market demand The market demand curvecurve101102
12、103104QUANTITYPRICEa /2a / 2b= 1 =1 ( ( 1/2 ,p = 0, 1 if q = 1/2 , 0 if q 1/2 ,q = 0, 1 if p = 1/2 , 1 if p 1/2 .q11 pN0210lMethod of response Method of response functions: The functions: The intersectionsintersections of response of response functions give Nash functions give Nash equilibriaequilib
13、ria(p(p* *, q, q* *) = (1/2, 1/2) in ) = (1/2, 1/2) in example)example)lNash TheoremNash Theorem: : There is always a ( maybe There is always a ( maybe “mixed”) Nash “mixed”) Nash equilibrium for any finite equilibrium for any finite gamegame211lSequential gamesSequential games.lGames in extensive f
14、orm extensive form versus in normal formnormal form. 212Battle of Sexes againBoyBoyGirlGirlBalletBalletBalletSoccerSoccerSoccer( 1, 2)( -1, -1)( 0, 0)( 2, 1)213Strategies as Plans of Actions.Boys strategies: Ballet, and Soccer.Girls Strategies: Ballet strategy; Soccer strategy; Strategy to follow; a
15、nd Strategy to oppose.214215216lA pure exchange model of two goods, two consumers with fixed endowments w. 217l Region of mutual advantagesRegion of mutual advantages.l Pareto set and the contract contract curvecurve.l Bargaining for relative prices.l Gross demand demand x x (p) , l Net or excess de
16、mandexcess demand z (p) = x (p) - w (p).218Person BPerson BPerson APerson AxA1wA1Endowment Endowment wA2xA2GOOD 2GOOD 2GOOD 1GOOD 1xB1wB1xB2wB2MM219EndowmentPerson Bs indifference curveA Pareto efficient allocationPerson As indifference curveContract Contract curvecurvePerson APerson AGOOD 1GOOD 1GO
17、OD 2GOOD 2Person BPerson B220lFrom disequilibrium to the competitive equilibrium. Which good is too cheap?lOffer curve approachOffer curve approach. lThe existence problem of equilibrium. 221As ind, curvesBs ind. curvesAs offer curveBs offer curveGood 1 is Too cheapEquilibrium priceWE222223Productio
18、n Production functionfunctionIndifference Indifference curvescurvesLaborLaborL*C*Coconuts224Production possibilities Production possibilities setsetF*C*COCNUTSCOCNUTSFISHFISHPRODUCTION PRODUCTION POSSIBILITIES POSSIBILITIES SETSETSLOPE=MARGINAL RATE OF SLOPE=MARGINAL RATE OF TRANSFORMATIONTRANSFORMA
19、TION225A AP PC C226227l* * Costs of exchange. Costs of exchange. l* * Price difference between Price difference between selling and buying. selling and buying. Fig. Fig.l* * GATT and WTO. GATT and WTO. 228229230lBenthamite: Benthamite: W (u W (u1 1, ,u , ,u n n ) = a ) = a 1 1u u 1 1 + + a + + a n n
20、 u u n n . .lRawlsian: Rawlsian: W (u W (u1 1, ,u , ,u n n ) = min u) = min u1 1 , , , u u n n . .2311, 1, It should be complete, reflexive, It should be complete, reflexive, and transitive;and transitive;2, If everyone prefers X to Y, then 2, If everyone prefers X to Y, then the society should pref
21、er X to Y;the society should prefer X to Y;3, The preferences between X and Y 3, The preferences between X and Y should depend only on how people should depend only on how people rank X versus Y, and not on how rank X versus Y, and not on how they rank other alternatives.they rank other alternatives
22、.232lI f a s o c i a l d e c i s i o n I f a s o c i a l d e c i s i o n m e c h a n i s m s a t i s f i e s m e c h a n i s m s a t i s f i e s properties 1, 2, and 3, properties 1, 2, and 3, then it must be a dictatorship: then it must be a dictatorship: all social rankings are the all social rank
23、ings are the rankings of one individual.rankings of one individual.233ExternalitiesExternalities 234The lack of markets for externalities causes problems. 235With externalitiesexternalities,the market will not necessarily result in a Pareto efficient provision of resources. 236 However, some other s
24、ocial institutions can mimicmimic the market mechanism. 237The model The model of of smokers smokers and and nonsmokersnonsmokers (showing excellent analysis techniques). 238Person APerson APerson BPerson BSMOKESMOKEMONEYMONEYAs indifference curvesPossible Possible equilibrium Xequilibrium XPossible
25、Possible endowment E endowment EPossiblePossible endowment E endowment EPossible Possible equilibrium Xequilibrium XBadGood239The practical problems with externalities generally arise because of poorly defined property rights. Caose TheoremCaose Theorem240Asymmetric Information 241Common knowledge a
26、nd private information. The latter leads toAsymmetric information, orAsymmetry of information.242QualityDensityAkerlof model: Akerlof model: the market for lemons.the market for lemons.243 Adverse selectionAdverse selection as a hidden informationhidden information problem. Moral hazardMoral hazard
27、as a hidden actionhidden action problem. 244SignalingSignalingTwo roles of education:To raise and to distinguishProductivitiesSpence model245 $ C(Y) for L wage system C(Y) for H Y* YBest Choice of L, and of H246 Graph to show separating equilibriaseparating equilibria and pooling equilibriapooling equilibria. . 247ENDandThanks248
