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50 Cards in this Set

  • Front
  • Back
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
HOD-0 in w and v
cost function
C(w,v,q)=wlc+vkc

lowest possible cost of producing q
think expenditure: HOD-1 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 = pq-wl-vk st q=f(l,k0)
max pi = pq-SC(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 = pq-C(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 n-1 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

HOD-0 in prices
expenditure
E(px,py,u)=px*xc+py*yc
HOD-1 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
inter-temporal
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