Ecomonics 10A

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Ecomonics 10A by Mind Map: Ecomonics 10A

1. Inter-temporal Consumption

1.1. U=C1C2

1.2. BC in Future Value with Inflation Assuming Prices are $1: (1+r)*C1 + (1+pi)*C2 = (1+r)m1 + m2

1.3. Tang: MRS = Slope of BC -(1+r) OR -(1+r)/(1+pi)

1.4. Present Value of Future $: $x/(1+r)

1.5. Future Value of Present $: (1+r)*$x

2. Consumer Demand

2.1. Cobb Douglas

2.1.1. U=XY

2.1.2. BC: P1*X + P2*Y = m

2.1.3. Tang: MRS = P1/P2

2.2. Leontief

2.2.1. U= min [X/a, Y/b]

2.2.2. BC: P1*X + P2*Y = m

2.2.3. Tang: X/a = Y/b

2.3. Linear

2.3.1. U=X + Y

2.3.2. BC: P1*X + P2*Y = m

2.3.3. Tang: Doesn't Exist

2.3.4. Compare MRS to Price Ratio: If MRS = Price Ratio, any Bundle is OK IF MRS > Price Ratio, Consume all X If MRS < Price Ratio, Consume all Y

3. Gambles and Insurance

3.1. Sum of the Weighted Utilities

3.2. Sum of Weighted Utilities of States of Nature

4. SE/IE

4.1. SE= B-A IE= C-B

4.2. Steps: 1) Find Demand functions for X and Y 2) Plug into Utility function and set it equal to the original utility. 3) Solve for Hicks Adjusted M 4) Plug M into the demand functions to find B

5. Firm Profits/Costs

5.1. Output Choice: Price = Marginal Cost

5.2. Shutdown Decision: Long Run: TR < LTC Short Run: TR < SVC

5.3. Cost Curves

5.3.1. Q=LK

5.3.2. Output Constraint: Q=LK

5.3.3. Tang: MPL/MPK = w/r

5.4. Short Run Profit Max

5.4.1. Q=LK (K Fixed)

5.4.2. FOCs: P*MPL=w P*MPK=r

5.4.3. K is fixed No Tangency Solve for L*

5.5. Long Run Profit Max

5.5.1. Q=LK

5.5.2. Tang: MPL/MPK = w/r

5.5.3. FOCs: P*MPL=w P*MPK=r

5.6. Long Run Cost Minimization

5.6.1. Q=LK (Q Fixed)

5.6.2. Tang: MPL/MPK = w/r

5.7. Short Run Cost Minimization

5.7.1. Q=LK (Q&K Fixed)

5.7.2. Just Solve for L

6. Labor/Leisure Trade-off

6.1. U=LeY

6.2. BC: Y + wLe = Yn + wT

6.3. Tang: MRS (MULe/MUy) = w

6.4. Reservation Wage: Tang when Le = T and Y = Yn