Intermediate Micro

1
Intermediate Micro

• Review

2
Overview

• Competitive Markets Demand and Supply,
  Equilibrium
• Behind Demand Consumer Choice
• Behind Supply Producer Choice
• Adjustments and Efficiency
• General Equilibrium Edgeworth box
• Monopoly and Pricing strategies
• Oligopoly Cournot, Bertrand, Stackelberg
• Monopolistic Competition
• Market entry games
• Choice under uncertainty
• Externalities
• Asymmetric Information

3
Competitive markets Ch 2

• Demand, Supply and Equilibrium
• Shifts due to changes in other goods prices or in
  consumer income or in cost to firms
• Algebraic and graphical solutions
• Price ceilings and floors
• Taxes and Subsidies
• Test 1 question 1

4
Elasticities Ch 3

• Own price demand elasticity
• Cross price demand elasticity
• Income demand elasticity
• Supply price elasticity
• Percent change Q / Percent change in
• Own price
• Cross price
• Income

5

• Test 1 Question 1
• Test 2 Question 3

6
Behind DemandConsumer Choice Ch 4

• Preference axioms
• Utility functions and indifference curves
• MRSchange in Qy / change in Qx MUx/MUy
• Substitutability
• Perfect substitutes
• Perfect complements
• Budget constraints
• Optimum MRS Px/Py
• MUx/Px MUy/Py
• Test 1 Question 3

7
Changes in Demand Ch 5

• Changes in prices or income affects budget
  constraint new optimum
• Deriving demand curves and Engel curves
• Income and Substitution Effect
• Test 1 Question 2
• Test 2 Question 1
• Labor Leisure choice and labor supply
• Test 1 Question 2

8
Behind SupplyTheory of the Firm Ch 6

• Production Functions
• Short run one factor is fixed (capital)
• Diminishing Marginal Product of Labor
• Long run all factors are variable
• Isoquants
• Isocosts
• Optimal input allocation MRTS w/r change in
  Qk/change in QL MPL/MPK
• Returns to scale
• Test 1 Question 4

9
Cost Functions Ch 7

• Short run costs
• Diminishing MPL
• Increasing MC
• AVC, AFC, ATC
• MCAVC at min, MCATC at min
• Long run costs
• AC depends on economies of scale
• MC AC at min

10
Profit Maximization Ch 8

• Firms profit function TR TC
• Firms optimal output decision MRMC
• Competitive markets PMR
• Short run supply sum of MC curves across firms
• Long run supply zero profits after entry and
  exit, PMCAC min
• Test 1 Question 5

11
Market Efficiency Ch 9

• Consumer Surplus
• Producer Surplus (Profits)
• Government budget
• Deadweight Loss
• PMC maximizes market efficiency
• Loss in efficiency due to government intervention
• Taxes and Subsidies
• Restricting number of firms
• Trade and trade restrictions
• Test 2 Question 3

12
General Equilibrium Ch 10

• Multiple Markets
• Qx10-PxPy Qx2Px
• Qy20-2PyPx Qy5Py
• 10-PxPy2Px
• 20-2PyPx5Py
• Py5 5/7
• Px7 6/7

13
General Equilibrium Ch 10

• Edgeworth box with barter
• Pareto optimality
• Edgeworth box with competitive exchange at given
  price
• Equilibrium requires zero excess demand and
  supply
• Production, production possibilities frontiers,
  and Edgeworth boxes

14
Monopoly Ch 11

• MR MC
• Lerner index (p-MC)/p -1/e
• Higher markup if demand is inelastic
• Effects of monopoly compared to competitive
  equilibrium (PMC)
• Smaller Q
• Higher P
• Loss in Market Efficiency deadweight loss

15
Pricing policies Ch 12

• Perfect price discrimination
• PWTP for each consumer
• All consumer surplus becomes monopoly profits
• Output is same as for competitive market no
  deadweight loss
• Multi-market price discrimination
• Elastic and inelastic markets
• MR differ across markets
• MR(1) MR(2) MC
• MR(1) P(1) 1 1/e(1) P(2)11/ e2) MR(2)
• Two-part tariff
• PMC and then charge each consumer their consumer
  surplus as fixed membership fee
• PgtMC may be justified if consumer surplus differ
  across people but only one fixed fee and unit P
  can be set
• Bundling
• WTP of different consumers across different goods
  has opposite pattern

16
Oligopoly and Monopolistic Competition

• Cournot duopoly
• Simultaneous moves in Q
• Stackelberg duopoly
• Sequential moves
• Bertrand duopoly
• Simultaneous moves in P
• Monopolistic Competition
• No entry barriers, profits0, PgtMC

17
Entry deterring strategies Ch 14

• Pre-commit to entry deterring quantity or
  accommodate entry
• Incumbent (Leader) figures out respondents best
  response to each possible incumbent decision
• Based on entry cost find out for which Q(L) that
  the entrant would make a loss
• Can the incumbent make more profits at these Q(L)
  than at the Stackelberg equilibrium
  (accommodating entry)?

18
Choice under uncertainty Ch 17

• Expected values (EV)
• Variance
• Expected utility
• Utility function is concave for risk averse
  people, convex for risk preferring, and linear
  for risk neutral
• Diversification can lower the variance without
  lowering the EV

19
Externalities Ch 18

• Positive and Negative Externalities
• Private, external and social MC
• Private equilibrium and Social optimum
• Deadweight losses from private equilibrium with
  negative (or positive) externalities
• Coase theorem