1. RL3 Review

2. Exam u Date: 5/12/16, 12:25-2:25 u Room: Bascom 165 (Last Name A-Q) u Education L196 (Last Name R-Z) u Cumulative u 2 hours (120 min) u Closed book (calculators not needed) u Format: Problems as in PS (no true false q) u Preparation 1.Master all PS and past exams 2.Read slides 3.Read book

3. Consumer’s Theory u Elements of choice theory: a)Budget set b)Preferences (4 types): indifference map, MRS u Choice(SoH, Magic formulas) u Comparative statics a)Substitution and Income effect b)Ordinary and Giffen, Inferior and Normal goods u Real endowments (buying and selling)

4. 3 applications u Labor markets - labor supply u Intertemporal Choice: a) 2 periods: b) T periods: u Uncertainty a) Lottery, Bernoulli and VNM utility b) Risk aversion c) Insurance

5. u Standard problem u Insurance problem: -Lotteries -No implicit markets -No utility function Insurance

6. Insurance: Budget set

7. Insurance: Preferences

8. Insurance: Choice

9. Markets: Competitive Equilibrium u Edgeworth Box u Pareto Efficiency and Contract Curve u Competitive Equilibrium u First welfare theorem

10. Competitive Producers u Technology RS, MPK, MPL u Profit Maximization, Cost Minimization u Cost functions, shapes for IRS, CRS and DRS u Supply function (also with fixed costs) u Equilibrium a)N firms b)free entry

11. Market Failures u Market Power a) Monopoly: Choice, elasticity, markup, price discrimination b) Oligopoly (Duopoly u Externalities and public goods u Asymmetric information

12. u No price discrimination u First degree (perfect) price discrimination Monopoly (2 benchmarks) Monopolistic Behavior

13. Inefficiency Total potential surplus and DWL u No price discrimination u First degree (perfect) price discrimination

14. Elasticity of a demand Measure of market competitiveness u Definition u Relation to MR

15. Elasticity: Implications u Only elastic part of the demand relevant u Elasticity and markup

16. The End Thank you and good luck