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Midterm 2 Review. Midterm 2 (L9-L14)  Applications of buying and selling 1.Labor Supply 2.Intertemporal Choice 3.Uncertainty  Markets and Exchange 1.Pareto.

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Presentation on theme: "Midterm 2 Review. Midterm 2 (L9-L14)  Applications of buying and selling 1.Labor Supply 2.Intertemporal Choice 3.Uncertainty  Markets and Exchange 1.Pareto."— Presentation transcript:

1 Midterm 2 Review

2 Midterm 2 (L9-L14)  Applications of buying and selling 1.Labor Supply 2.Intertemporal Choice 3.Uncertainty  Markets and Exchange 1.Pareto (In) efficiency 2.Competitive equilibrium 3.First Welfare Theorem

3 Applications

4 Uncertainty  Two states, probabilities  Bundle = lottery  Bernouli and Von Neumann-Morgenstern U. Examples:

5 Risk Aversion (definition)  Expected value of lottery:  Examples  Risk aversion better than

6 Risk Attitude

7  Possibility of Flood  Insurance contract  Budget set Uncertainty: Insurance

8  Choice: Uncertainty: Insurance

9  Fair insurance  Not fair insurance (Not) Fair Insurance Premium

10  Edgeworth Box (apple-orange, IC, U)  Pareto Efficiency  Competitive Equilibrium  Competitive Equilibrium Pareto efficient? Markets and Exchange (key ideas)

11 Edgeworth Box (and Efficiency)

12 Pareto Efficiency and Contract Curve

13 Competitive Equilibrium (Definition)

14 Competitive Equilibrium

15 Competitive Equilibrium (Geometry)

16 Competitive E and Pareto Efficiency

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