Econ 105 Review

Front 1

expected wealth

Back 1

xbar = x1a1+x2a2+...

Front 2

U(x1,x2,...;a1,a2,...)

Back 2

a1*v(x1)+a2*v(x2)...

Front 3

certainty equivalent wealth

Back 3

v(x^CE)=U(x1,x2;a1,a2)
x^CE=v^-1(U(x1,x2;a1,a2))
amount of wealth willing to take rather than face the lottery

Front 4

risk premium

Back 4

xbar - x^CE
difference between expected wealth and certainty equivalent wealth

Front 5

production function

Back 5

q=f(l,k)

Front 6

short run production function

Back 6

q=f(l,k0)

Front 7

average product

Back 7

APl=f(l,k)/l=q/l
amount of output per l

Front 8

marginal product

Back 8

mpl=dq/dl
change in output from an additional l

Front 9

relation between MP and AP

Back 9

MP passes thru any local max or min of AP
AP=MP at max or min

Front 10

marginal rate of technical substitution

Back 10

MRTS=MPl/MPk=-Dk/Dl
rate at which k can be subbed for l at a constant q

Front 11

cost minimization equation

Back 11

min wl+vk s.t. f(l,k)=q
minimal cost at a given q

MPl/MPk = w/v

Front 12

conditional factor demands

Back 12

lc(w,v,q), kc(w,v,q)
think Hicksian demand
HOD-0 in w and v

Front 13

cost function

Back 13

C(w,v,q)=wlc+vkc

lowest possible cost of producing q
think expenditure: HOD-1 in w,v

Front 14

average cost

Back 14

C(q)/q

Front 15

marginal cost

Back 15

DC/Dq

Front 16

relation between average and marginal cost

Back 16

AC is always approaching MC

Front 17

short run cost

Back 17

SC(q)=vk0 + VC(q)

Front 18

short run average cost

Back 18

SAC(q)=SC(q)/q

Front 19

variable cost

Back 19

VC(q)=wlc

Front 20

average variable cost

Back 20

AVC(q)=VC(q)/q
cost per unit excluding fixed cost

Front 21

short run marginal cost

Back 21

SMC(q)=DSC/Dq
cost of producing next unit

Front 22

relation between SMC and SAC

Back 22

SMC(q)=SAC(q) at min point of SAC

Front 23

short run profit maximization

Back 23

max pi = pq-wl-vk st q=f(l,k0)
max pi = pq-SC(q)

Front 24

shutdown condition

Back 24

if pq<VC(q), shutdown (q=0)

Front 25

short run supply function

Back 25

q(p)= 0 if p<min AVC
SMC^-1(p) otherwise

Front 26

long run profit maximization

Back 26

max pi = pq-C(q)

Front 27

long run equilibrium

Back 27

pi=0 for all firms... no entry or exit

Qd=Qs

Front 28

walrasian equilibrium

Back 28

each firm is maximizing its profit
each consumer is maximizing his utility
quantity demanded = quantity supplied

Front 29

edgeworth pareto efficient point

Back 29

du1/dx1 / du1/dy1 = du2/dx2 / du2/dy2

curves are tangent

Front 30

contract curve

Back 30

set of pareto efficient allocations in edgeworth box

Front 31

first welfare theorem

Back 31

every general equilibrium is pareto efficient

du1/dx1 / du1/dy1 = px/py = du2/dx2 / du2/dy2

Front 32

second welfare theorem

Back 32

if preferences are convex, any pareto efficient allocation can be an equilibrium

Front 33

walras law

Back 33

if there are n markets and n-1 are in equilibrium, then all n must be in equilibrium

Front 34

efficiency in edgeworth production

Back 34

MPLy/MPKy=MPLx/MPKx

marginal rate of technical sub between labor and capital equal across all producers

Front 35

rate of product transformation

Back 35

RPT = -MC(x)/MC(y)

slope of PPF

rate at which y can be transformed into x by redeploying inputs

Front 36

solve for marshallian demand

Back 36

du/dx / du/dy = px=py

Front 37

indirect utility

Back 37

V(px,py,I) = U(x*,y*)
overall utility

Front 38

duality equation

Back 38

min xpx + ypy st U(x,y)>=u

Front 39

solve for hicksian demand

Back 39

utility function, du/dx / du/dy

dE/dpx

HOD-0 in prices

Front 40

expenditure

Back 40

E(px,py,u)=px*xc+py*yc
HOD-1 in prices
minimum income required for utility u

Front 41

Shephards Lemma

Back 41

dE/dpx = xc

Front 42

Roy's Identity

Back 42

x*=-dV/dpx / dV/dI

Front 43

normal good

Back 43

consume more as income rises

dx*/dI > 0

Front 44

inferior good

Back 44

consume less as income rises

dx*/dI < 0

Front 45

compensating variation

Back 45

E(px1,py,u0)-E(px0,py,u0)

how much it would take at new price to return to original utility

Front 46

equivalent variation

Back 46

E(px1,py,u1)-E(px0,py,u1)

how much you would pay to not face to price change in the first place

Front 47

inter-temporal

Back 47

endowment: (I0,I1)
vert int: I1+(1+r)I0
hor int: I0+I1/(1+r)

Front 48

1st degree price discrimination

Back 48

charge each person their reservation value- captures entire demand

Front 49

2nd degree price discrimination

Back 49

charge fixed fee plus price per unit

Front 50

3rd degree price discrimination

Back 50

different prices for different groups