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50 Cards in this Set
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expected wealth

xbar = x1a1+x2a2+...


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

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


certainty equivalent wealth

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 

risk premium

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

production function

q=f(l,k)


short run production function

q=f(l,k0)


average product

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

marginal product

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

relation between MP and AP

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

marginal rate of technical substitution

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

cost minimization equation

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

conditional factor demands

lc(w,v,q), kc(w,v,q)
think Hicksian demand HOD0 in w and v 

cost function

C(w,v,q)=wlc+vkc
lowest possible cost of producing q think expenditure: HOD1 in w,v 

average cost

C(q)/q


marginal cost

DC/Dq


relation between average and marginal cost

AC is always approaching MC


short run cost

SC(q)=vk0 + VC(q)


short run average cost

SAC(q)=SC(q)/q


variable cost

VC(q)=wlc


average variable cost

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

short run marginal cost

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

relation between SMC and SAC

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


short run profit maximization

max pi = pqwlvk st q=f(l,k0)
max pi = pqSC(q) 

shutdown condition

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


short run supply function

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

long run profit maximization

max pi = pqC(q)


long run equilibrium

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

walrasian equilibrium

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

edgeworth pareto efficient point

du1/dx1 / du1/dy1 = du2/dx2 / du2/dy2
curves are tangent 

contract curve

set of pareto efficient allocations in edgeworth box


first welfare theorem

every general equilibrium is pareto efficient
du1/dx1 / du1/dy1 = px/py = du2/dx2 / du2/dy2 

second welfare theorem

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


walras law

if there are n markets and n1 are in equilibrium, then all n must be in equilibrium


efficiency in edgeworth production

MPLy/MPKy=MPLx/MPKx
marginal rate of technical sub between labor and capital equal across all producers 

rate of product transformation

RPT = MC(x)/MC(y)
slope of PPF rate at which y can be transformed into x by redeploying inputs 

solve for marshallian demand

du/dx / du/dy = px=py


indirect utility

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

duality equation

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


solve for hicksian demand

utility function, du/dx / du/dy
dE/dpx HOD0 in prices 

expenditure

E(px,py,u)=px*xc+py*yc
HOD1 in prices minimum income required for utility u 

Shephards Lemma

dE/dpx = xc


Roy's Identity

x*=dV/dpx / dV/dI


normal good

consume more as income rises
dx*/dI > 0 

inferior good

consume less as income rises
dx*/dI < 0 

compensating variation

E(px1,py,u0)E(px0,py,u0)
how much it would take at new price to return to original utility 

equivalent variation

E(px1,py,u1)E(px0,py,u1)
how much you would pay to not face to price change in the first place 

intertemporal

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

1st degree price discrimination

charge each person their reservation value captures entire demand


2nd degree price discrimination

charge fixed fee plus price per unit


3rd degree price discrimination

different prices for different groups
