1.

consumer surplus
2.producer surplus
3.Demand curve has Q on x axis and p on y axis

4.Ad valorem tax: percent tax

(perfect substitutes)

(perfect complements)
A monotonic transformation doesn’t change the ordering of any pair of goods
i.e. u(a)>=u(b) => v(a)>v(b)
• http://akdeniz.bilkent.edu.tr/courses/micro/solhw2.htm
 Utility-concave function
Convex preferences

•
Show how continuity implies upper contour
set is closed
 i.e. increases when I increase both

i.e. increases even if I hold one constant and increase other

i.e. (x1>x2 and y1>=y2) or (x1>=x2 and y1>y2) =>

why can indifference curve have no gap?
Because continuous so when tending to corner point it should have
same value
Marshallian demand
Shadow value of money
• Like if utility (after putting in marshellian demand) = 2m
• Then shadow value is 2
See 3 graphs of inferior etcc goods lec9
If j=i -> own price effect on marshellian demand
else -> cross price effect
SARP guarantees transitivity, but WARP doesnt
Average product of a production function
increasing
• long run:
• firm produces if C'>AC
• firm make profit if C'>AC

• short run:
• firm produces if C'>AVC
• firm make profit if C'>AC
•
monopolist
•
Rate monopolist (knows demand curve)
P*-> p=D(q)=C’(q) Deadweight loss
Pm-> pm=D(qm)
where qm satisfies dpi/dq=0
i.e. d/dq*(qD(q)-C(q))=0
Menu monopolist (knows demand curve)
No consumer surplus and no deadweight loss
2 consumer case:
rate monopolist (knows demand curve)
Similar to first case:
2 consumer case:
menu monopolist (knows demand curve and identity)
No consumer surplus
again
2 consumer case:
menu monopolist (knows demand curve but not identity)
Q. Think about why monopolist cant increase or decrease the
white region?
Read lec15
List of equations for n customers and m
goods
• Maximise for given p and w: utility (n eqns)
• Budget constraint for given p and w (n eqns)

• Market clear conditions (any one of the m goods):

Pareto efficiency
Try proofs
Economy with one firm and 1 customer
• Step 1 of 3: optimize for firm (take p and w constant)
Step 2 of 3: optimize for consumers:
Step 3: God’s hand: markets
clear
Deadweight loss:
• Integral (p-c’) dq from pm to p*