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Midterm 2 Review.

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Presentation on theme: "Midterm 2 Review."— Presentation transcript:

1 Midterm 2 Review

2 Three parts (L9-L18) Applications of buying and selling
Intertemporal Choice Uncertainty Markets and Exchange Pareto (In) efficiency Competitive equilibrium Producers Production function Profit Maximization Labor markets Cost Minimization (cost functions)

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

4 Risk Aversion Expected value of lottery: Examples Risk aversion
better than Utility and risk aversion

5 Utility and Risk Aversion

6 Certainty Equivalent Certainty equivalent of lottery Example
Risk Aversion:

7 Uncertainty: Insurance
Possibility of Flood Insurance contract Budget set

8 Uncertainty: Insurance
Choice:

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

10 Edgeworth Box

11 Competitive Equilibrium

12 Competitive Equilibrium

13 Competitive Equilibrium (Geometry)

14 Competitive E and Pareto Efficiency

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