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Microeconomic Theory

Lecture Notes1 Microeconomic TheoryGuoqiang TIAND epartment of EconomicsTexas A&M UniversityCollege Station, Texas 2002/Revised: February 20131 This lecture notes are only for the purpose of my teaching and convenience of my students in class,but not for any other Preliminaries on Modern Economics and Nature of Modern Economics .. Modern Economics and Economic Theory .. Key Assumptions and Desired Properties Commonly Used Economics The Basic Analytical Framework of Modern Economics .. Methodologies for Studying Modern Economics .. Roles, Generality, and Limitation of Economic Theory .

Lecture Notes 1 Microeconomic Theory Guoqiang TIAN Department of Economics Texas A&M University College Station, Texas 77843 (gtian@tamu.edu) August, 2002/Revised: February 2013

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Transcription of Microeconomic Theory

1 Lecture Notes1 Microeconomic TheoryGuoqiang TIAND epartment of EconomicsTexas A&M UniversityCollege Station, Texas 2002/Revised: February 20131 This lecture notes are only for the purpose of my teaching and convenience of my students in class,but not for any other Preliminaries on Modern Economics and Nature of Modern Economics .. Modern Economics and Economic Theory .. Key Assumptions and Desired Properties Commonly Used Economics The Basic Analytical Framework of Modern Economics .. Methodologies for Studying Modern Economics .. Roles, Generality, and Limitation of Economic Theory .

2 Roles of Mathematics in Modern Economics .. Conversion between Economic and Mathematical Languages .. Distinguish between Necessary and Sufficient Conditions as wellNormative and Positive Statements .. Language and Methods of Mathematics .. Functions .. Separating Hyperplane Theorem .. Concave and Convex Functions .. Optimization .. The Envelope Theorem .. Point-to-Set Mappings .. Continuity of a Maximum .. Fixed Point Theorems .. 26I Individual Decision Making302 Consumer Introduction .. Consumption Set and Budget Constraint.

3 Consumption Set .. Budget Constraint .. Preferences and Utility .. Preferences .. The Utility Function .. Utility Maximization and Optimal Choice .. Consumer Behavior: Utility Maximization .. Consumer s Optimal Choice .. Consumer s First Order-Conditions .. Sufficiency of Consumer s First-Order Conditions .. Indirect Utility, and Expenditure, and Money Metric Utility Functions .. The Indirect Utility Function .. The Expenditure Function and Hicksian Demand .. The Money Metric Utility Functions .. Some Important Identities.

4 Duality Between Direct and Indirect Utility .. Properties of Consumer Demand .. Income Changes and Consumption Choice .. Price Changes and Consumption Choice .. Income-Substitution Effect: The Slutsky Equation .. Continuity and Differentiability of Demand Functions .. Inverse Demand Functions .. The Integrability Problem .. Revealed Preference .. Axioms of Revealed Preferences .. Characterization of Revealed Preference Maximization .. Recoverability .. Topics in Demand Behavior .. Endowments in the Budget Constraint.

5 Income-Leisure Choice Model .. Homothetic Utility Functions .. Aggregating Across Goods .. Aggregating Across Consumers .. 903 Production Introduction .. Production Technology .. Measurement of Inputs and Outputs .. Specification of Technology .. Common Properties of Production Sets .. Returns to Scale .. The Marginal Rate of Technical Substitution .. The Elasticity of Substitution .. Profit Maximization .. Producer Behavior .. Producer s Optimal Choice .. Producer s First-Order Conditions .. Sufficiency of Producer s First-Order Condition.

6 Properties of Net Supply Functions .. Weak Axiom of Profit Maximization .. Recoverability .. Profit Function .. Properties of the Profit Function .. Deriving Net Supply Functions from Profit Function .. Cost Minimization .. First-Order Conditions of Cost Minimization .. Sufficiency of First-Order Conditions for Cost Minimization .. Cost Functions .. Properties of Cost Functions .. Properties of Conditional Input Demand .. Average and Marginal Costs .. The Geometry of Costs .. Long-Run and Short-Run Cost Curves.

7 Duality in Production .. Recovering a Production Set from a Cost Function .. Characterization of Cost Functions .. The Integrability for Cost Functions .. 1364 Choice Under Introduction .. Expected Utility Theory .. Lotteries .. Expected Utility .. Uniqueness of the Expected Utility Function .. Other Notations for Expected Utility .. Risk aversion .. Absolute Risk Aversion .. Global Risk Aversion .. Relative Risk Aversion .. State Dependent Utility .. Subjective Probability Theory .. 154II Strategic Behavior and Markets1595 Game Introduction.

8 Description of a game .. Strategic Form .. Solution Concepts .. Mixed Strategies and Pure Strategies .. Nash equilibrium .. Dominant strategies .. Repeated games .. Refinements of Nash equilibrium .. Elimination of dominated strategies .. Sequential Games and Subgame Perfect Equilibrium .. Repeated games and subgame perfection .. Games with incomplete information .. Bayes-Nash Equilibrium .. Discussion of Bayesian-Nash equilibrium .. 1846 Theory of the Introduction .. The Role of Prices .. Perfect Competition.

9 Assumptions on Competitive Market .. The Competitive Firm .. The Competitive Firm s Short-Run Supply Function .. Partial Market Equilibrium .. Competitive in the Long Run .. Pure Monopoly .. Profit Maximization Problem of Monopolist .. Inefficiency of Monopoly .. Monopoly in the Long Run .. Monopolistic Competition .. Oligopoly .. Cournot Oligopoly .. Stackelberg Model .. Bertrand Model .. Collusion .. Monopsony .. 205 III General Equilibrium Theory and Social Welfare2077 Positive Theory of Equilibrium: Existence, Uniqueness, and Stability Introduction.

10 The Structure of General Equilibrium Model .. Economic Environments .. Institutional Arrangement: Private Market Mechanism .. Individual Behavior Assumptions: .. Competitive Equilibrium .. Some Examples of GE Models: Graphical Treatment .. Pure Exchange Economies .. The One-Consumer and One Producer Economy .. The Existence of Competitive Equilibrium .. The Existence of CE for Aggregate Excess Demand Functions .. The Existence of CE for Aggregate Excess Demand The Existence of CE for General Production Economies .. The Uniqueness of Competitive Equilibria.


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