1. Intermediate Microeconomics Econ 301
Instructor: Marek Weretka
Course Description
Textbook
Grading
Teaching website
Attitude (no pain no gain, interactive)
Rules
Please contact me after class
Mc Burney Student
Not registered students

2. REEF Polling: iclicker Laptop/smartphone/iclicker
Class Quiz
REEF Polling: iclicker
Laptop/smartphone/iclicker
Q: How much do you like economics
I love it
I cannot live without it
I would die for it
All of the above

3. Roadmap Consumers, Producers, Market Failures 1) Consumer Choice
Budget set and preferences
Optimal Choice
Applications
- Labor Market,
- Finance
- insurance markets
Markets (Egegworth Box)
2) Producers and Market Failures
- Technology
- Monopoly and Oligopoly
- Other (Externalities, Public Goods)

4. Rationality in Economics
What does it mean ‘'rational?’’
Behavioral Postulate: A decisionmaker chooses its most preferred alternative from the set of affordable alternatives.
Budget set = affordable alternatives
To model choice we must have decisionmaker’s preferences.

5. L01
Budget Set

6. Consumers: Commodity space
Commodity (apples, oranges, cars etc)
A Consumption Bundles
Math: Consumption bundle is a vector
Commodity Space - the set of all consumptions bundles
Budget set - set of all consumption bundles that are affordable given prices and income

7. Assumptions In our simple world 2 commodities
Commodities perfectly divisible
Selfish agents

8. Commodity Space: Geometry, 2 goodsx2
(Oranges) x1
(Apples)

9. Budget Set =all affordable bundles
(1,1),(2,2),(3,3)
Budget constraint
Budget set: all affordable bundles
p1=$2
p2=$1
m=$6

10. Budget Set and Real Incomex2
p1=2
p2=1
m=6 x1
EI: Real income = income in terms of goods

11. Slope (Real Price) x2 p1=2 p2=1 m=6 x1
Real price: an apple price in terms of oranges

12. Budget Set Budget set depends on prices and income
What happens to the budget set if
income changes?
one of the prices changes?
Effects of Inflation, taxes

13. Income goes down x2
p1=2
p2=1
m=6
m=4 x1
Budget line: parallel shift

14. Oranges more expensive
Budget line pivots counterclockwise

15. Inflation and Budget set
p1=2
p2=1
m=6
p1=4
p2=2
m=12 x2 x1

16. Inflation and Budget set
CPI inflation 100%
p1=2
p2=1
m=6
p1=4
p2=2
m=6 x2
Quiz: BL Shift
A. parallel
B. clockwise
C: counterclockwise
D: none of the above x1

17. Ad Valorem Tax
Tax rate t=100%
p1=2
p2=1
m=6 x2
After tax prices x1

18. The Food Stamp Program
Food stamps are coupons that can be legally exchanged only for food. x2
p1=2
p2=1
m=6
F=2 apples
Black Market x1

19. Budget Set with Minimal Purchase Maximal Purchase (Rationing)
Quantity discount