1. Midterm
Review

2. Abstract Model:
1. Budget set
2. Preferences
3. Choice
a) secrets of happiness
b) Magic formulas

3. Budget set Budget set: Write down budget constraint
Illustrate it geometrically (numbers)
Interpret the slope (econ. and geom.)
Changes: Price and Income
Modifications:
e.g. Taxes, Subsidies, Gifts

4. Budget set Graph, Slope, Price and Income Change
Taxes, Subsidies, Gifts

5. Preferences Preferences: ranking of bundles
Geometric representation – indifference c.
Marginal rate of substitution
Goods, Bads, Satiated preferences (slopes)
Four examples of preferences
Cob-Douglass
Perfect Complements
Perfect Substitutes
Quasilinear
Utility and MRS
Monotone transformations

6. Preferences (4 examples)
MRS (find, interpret, )

7. Choice – well behaved preferences
Given and
Note: can be parameters
Find optimal choice on the graph
Secrets of happiness
Geometric interpretation
Economic Interpretation
Analytical solution
Magic formulas

8. Choice
Graph, optimality conditions, twist interiority!

9. Extreme preferences
Graph, optimality conditions, twist interiority, !

10. Magic formulas (Cobb Douglas)

11. Applications Applications of buying and selling model Labor Supply
Intertemporal Choice
Uncertainty

12. Applications

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

14. Risk Aversion (definition)
Expected value of lottery:
Examples
Risk aversion
better than

15. Risk Attitude

16. Uncertainty: Insurance
Possibility of Flood
Insurance contract
Budget set

17. Uncertainty: Insurance
Choice:

18. (Not) Fair Insurance Premium
Fair premium
Not fair premium

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

20. Edgeworth Box (and Efficiency)

21. Pareto Efficiency and Contract Curve

22. Competitive Equilibrium

23. Competitive Equilibrium

24. Competitive Equilibrium (Geometry)

25. Competitive E and Pareto Efficiency