Summary
Summary of lecture slides and book of intermediate microeconomics
- Course
- Institution
- Book
Summary of lecture slides and book chapters from week 1 till week 8. For the endterm
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
More summaries for
-
Summary of lectures, course manual, book and readings - Intermediate Microeconomics
Seller
Follow
frederique0202
Reviews received
Content preview
Week 1Pareto efficient: If having a other equilibrium another person have to become better
and other person becomes worser
❖ expected value of income = P*x1 + Px2
❖ The utility of the expected value (uncertain outcome) = Does not consider risk
❖ The expected utility of income (certain income) = Does consider the risk
Risk attitudes
- Risk averse: Utility of expected value > expected utility (Uncertain income < certain
income)
- Concave function
- Risk loving: Expected utility > Utility of expected value (Certain income < Uncertain
income)
- convex function
- Risk neutral: Expected utility = Utility of expected value (indifferent)
- linear function
Knowing if it is concave or convex
- Take second derivative
- → if negative = concave (risk averse)
- → if positive = convex (risk loving)
Risk premium = Expected value - CE
How much a risk averse person is willing to pay to avoid risk, the maximum willingness to
pay to avoid risk
Certainty equivalent = expected utility
MEASURES OF RISK AVERSION
- Using Arrow-Pratt
1. Absolute risk aversion (the amount of euro’s invested)
, 2. Relative risk aversion (the fraction amount invested on the wealth total)
RRA * X =m ARA
HOW ABSOLUTE/RELATIVE RISK AVERSION → CHANGE WITH WEALTH
Absolute risk aversion
Relative risk aversion
INTER TEMPORAL CHOICE
- people mostly wants to consume now and not in the future
- including time differences
- Indifference curve: convex → shows the individuals preferences for consumption in
different time periods
- the discount rate, future periods are discounted
,CONSISTENT TIME PREFERENCES
- following original plan → time consistent
- want to change his plan afterhand → time inconsistent
- Allocating a fixed budget for each period → use langrangia
*Player following the hyperbolic discounting → wants to change plans (Time Inconsistent)
* Player following the exponential discounting → always stick to the plan (Time consistent)
SELF AWARENESS
= comparing expected behavior with actual behavior
- Time incostentent players may or not may aware that their preferences will change
over time
- completely naive (B=1) → believes that preferences will be identical to current
preferences
- Completely sophisticated (B^ = B) → correctly predict how preferences will
change over time
By O’Donoghue and rabin (2001)
- B^ = Expected level of present bias
- B = the true level
- Investment goods → consumption with future benefits
- 1 > B^ > B (overestimation of consumption)
- Leisure goods → consumption with future costs
- 1 > B^ < B (underestimation of consumption)
, WEEK
2
STRATEGIC INTERACTIONS = studied in game theory
Public goods → nobody will contribute because they will own the profit without costs
Difference behavior economics and mainstream economics (Rational theory) (Standard) by
Rabin
Agents are not always:
- 100% self-centered (no pure self interest)
- 100% rational (not perfect calculators)
- 100% self controlled (time inconsistency)
MEAUSRING THE MONOPOLY POWER
→ use the lerner index
L = (P-MC)/P
MARKETS
Competitive market → price takers, P=MC
Monopoly → MR = MC
Oligopoly = only a few sellers
- The products may or not be differentiated
- barriers to entry
- natural barriers to entry
- scale economies
- patents
- reputation
Duopoly = only 2 sellers
DIFFERENCE DECISION THEORY AND GAME THEORY
- Decision theory
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller frederique0202. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $6.46. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
48298 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 15 years now