Transcription of Lecture Note Microeconomic Theory 1 - Yonsei
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Lecture Note Microeconomic Theory 1 - Yonsei
Lecture NoteMicroeconomic Theory 1 Basic analytical framework of modern economics: Economic environments: Number of agents, individuals characteristics (preference,technology, endowment), information structures, institutional economic environments Behavioral assumption: Selfish and rational agents Economics institutional arrangements: Economic mechanism Equilibrium Evaluation: Welfare analysis (first-best, second-best) Mathematics as a tool for economists To describe model and assumptions clearly and precisely To make analysis rigorous To obtain results that may not be available through verbal arguments To reduce unnecessary debates1 Chapter 1 Consumer Theory4 Building blocks: consumption set, feasible set (Budget set), preference relation, andbehavioral Consumption Set and Budget ConstraintAssume that there areLgoods.
A fundamental hypothesis in the consumer theory is that a rational consumer will choose a most preferred bundle from the set of affordable alternatives. • Utility maximization problem: for p ≫ 0, and m>0, max x∈RL + u(x) s.t. x ∈ B(p,m) or p ·x ≤ m. − At least one solution exists since B(p,m) is compact and u(x) is continuous (by the
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