Microeconomics Corso E

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MicroeconomicsCorso E

• John Hey

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What do we know?

• The reservation price of a buyer is...
• ...the maximum price he or she would pay.
• The reservation price of a seller is ...
• ...the minimum price he or she would accept.

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What do we know?

• The surplus of a buyer is ...
• ... the area between the price paid and the
  demand curve.
• The surplus of a seller is ...
• ... the area between the price received and the
  supply curve.
• An indifference curve is ...
• ... a set of points about which the individual is
  indifferent.

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An indifference curve and reservation prices

• Beginning at the point (0,9)
• Buyer
• For the first unit 4
• For the second 3
• For the third 2

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Reservation prices and the demand curve

• Beginning at the point (0,9)
• Buyer
• For the first unit 4
• For the second 3
• For the third 2

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An indifference curve and reservation prices

• Starting at the point (3,0)
• Seller
• For the first unit 2
• For the second 3
• For the third 4

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Reservation prices and the supply curve

• Starting at the point (3,3)
• Seller
• For the first unit 2
• For the second 3
• For the third 4

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Deduction and inference

• If we know the preferences of the individual (the
  indifference curves or the reservation prices)
  and the endowment of the individual...
• ...we can deduce the demand curve or the supply
  curve of the individual...
• If instead we observe the demand and supply of
  the individual...
• ...we can infer the preferences of the individual.

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Deduction and inference

• The preferences of the individual (the
  indifference curves or the reservationprices) and
  the endowment
• ? ?
• Whether the individual is a buyer or a seller and
  either the demand or supply curve of the
  individual.

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A Quiz

• I do not like Japanese beer...
• ...hence I never buy Japanese beer.
• Hence my indifference curves (between money and
  Japanese beer) are ...?
• .....
• My reservation prices (as a buyer) for Japanese
  beer are ....?

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Chapter 4

• In Chapter 3 we have worked with a discrete good
  that is, a good that can be traded in integer
  units.
• In Chapter 4 we work with a perfectly divisible
  good .... which can be traded in any quantities,
  not only integer units.
• We continue to work with a particular kind of
  preferences quasi-linear ...
• ... which imply indifference curves parallel in a
  vertical direction.

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If you like mathematics...

• m 60/q costant is the equation of an
  indifference curve the larger the constant, the
  higher the indifference curve.
• pq m 3p 30 is the equation of the budget
  line. Here 3 is the endowment of the good and 30
  that of money, p is the price of the good, q the
  quantity consumed and m the amount of money left
  to spend on other goods.
• If we maximise the constant given the budget
  constraint we obtain the gross demand for the
  good
• q v(60/p)
• The individual begins with 3 units of the good
  hence the net demand is
• q v(60/p) 3
• Note this is positive if p lt 60/9 6.66666...
• is negative if p gt 60/9 6.6666...
• is zero if p 60/9 6.6666....

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Chapter 4

• Goodbye!

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