https://teddyrookbook.com/economics/intermediate-microeconomics/Recent content in Intermediate Microeconomics on Teddy Rook Bookhttps://teddyrookbook.com/img/share.jpghttps://teddyrookbook.com/img/share.jpgHugoenhttps://teddyrookbook.com/economics/intermediate-microeconomics/preferences/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/preferences/Completeness, transitivity, more-is-better and a taste for variety let us rank bundles of goods consistently. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/indifference-curves/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/indifference-curves/All bundles a person likes equally lie on one curve; when more is better, the curves slope down and never cross. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/utility-functions/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/utility-functions/A utility function gives preferred bundles bigger numbers; any increasing transformation of it describes the same preferences. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/marginal-utility-calculus/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/marginal-utility-calculus/MUx = ∂U/∂x is the extra utility from a little more x with y held fixed. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/mrs/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/mrs/MRS = MUx/MUy, the amount of y a person would give up for one more x, is the size of the indifference curve's slope. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/preference-types/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/preference-types/Four common utility functions and the shapes of their indifference curves. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/budget-set/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/budget-set/p₁x₁ + p₂x₂ ≤ m, and how prices, income, taxes and rationing reshape the set of affordable bundles. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/optimal-choice/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/optimal-choice/At an interior optimum the MRS equals the price ratio; substitute the budget into the utility function and maximize. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/cobb-douglas-demand/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/cobb-douglas-demand/With U = xᵃyᵇ a person spends the fixed share a/(a + b) of income on x. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/corner-solutions/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/corner-solutions/Perfect substitutes lead to buying only the good with more utility per dollar; perfect complements are bought in fixed proportions. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/lagrange-consumer/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/lagrange-consumer/Maximize utility subject to the budget with a Lagrange multiplier, which measures the marginal utility of income. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/expenditure-minimization/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/expenditure-minimization/The cheapest way to reach a utility level is also a tangency, and it gives compensated (Hicksian) demand. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/revealed-preference/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/revealed-preference/If you chose bundle A when B was affordable, you should never choose B when A is affordable. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/income-changes/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/income-changes/The income offer curve and the Engel curve show normal goods, inferior goods, luxuries and necessities. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/price-changes/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/price-changes/Rotating the budget line traces the price offer curve and the demand curve; doubling all prices and income changes nothing. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/income-substitution-effects/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/income-substitution-effects/Split a price change into a move along the original indifference curve and a shift from the change in buying power. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/point-elasticity/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/point-elasticity/ε = (dQ/dP)(P/Q) at a point; demand Q = AP^(−k) has elasticity −k everywhere. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/market-demand/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/market-demand/Market demand adds the quantities all buyers want at each price, a horizontal sum. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/consumer-surplus-integral/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/consumer-surplus-integral/Consumer surplus is the area under the demand curve and above the price, an integral over quantity. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/compensating-equivalent-variation/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/compensating-equivalent-variation/Money measures of a price change: how much to hand back afterward (CV) or take away beforehand (EV) to leave utility the same. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/labor-leisure/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/labor-leisure/A higher wage makes leisure more costly but also makes you richer, so labor supply can bend backward. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/present-value/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/present-value/A dollar later is worth less than a dollar now: PV = FV/(1 + r)ᵗ, with shortcuts for annuities and perpetuities. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/intertemporal-choice/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/intertemporal-choice/The budget c₁ + c₂/(1 + r) = m₁ + m₂/(1 + r) shows when it pays to save and when to borrow. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/expected-utility/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/expected-utility/Compare risky choices by the probability-weighted average of their utilities, not of their dollar amounts. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/risk-aversion/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/risk-aversion/With concave utility, a sure amount below the expected value is as good as the gamble; the gap is the risk premium. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/insurance/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/insurance/A risk-averse person offered actuarially fair insurance buys full coverage. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/production-functions/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/production-functions/Q = f(K, L); the marginal product of labor is ∂Q/∂L. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/isoquants-mrts/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/isoquants-mrts/An isoquant shows the input mixes that make the same output; the size of its slope is MRTS = MPL/MPK. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/returns-to-scale/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/returns-to-scale/Doubling every input may more than double, exactly double, or less than double output. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/cost-minimization/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/cost-minimization/The cheapest input mix sets MRTS = w/r, the producer's version of the consumer's tangency. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/cost-functions/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/cost-functions/C(q) gives the least cost of making q; MC = C′(q) and AC = C(q)/q. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/short-long-run-cost/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/short-long-run-cost/With capital fixed, short-run cost is never below long-run cost; the long-run curve is the lower envelope of the short-run curves. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/minimum-average-cost/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/minimum-average-cost/Average cost is lowest where it equals marginal cost, and the quotient rule shows why. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/competitive-supply/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/competitive-supply/Maximize pq − C(q): set p = MC on the rising part of MC above minimum average variable cost. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/producer-surplus-integral/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/producer-surplus-integral/Producer surplus is the integral of p − MC, which equals revenue minus variable cost, or profit plus fixed cost. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/long-run-industry/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/long-run-industry/With free entry, price falls to minimum average cost, and the number of firms is market quantity over each firm's output. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/tax-incidence-formula/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/tax-incidence-formula/Buyers bear the share εS/(εS + |εD|) of a small per-unit tax, so the less elastic side pays more. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/deadweight-loss-calculus/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/deadweight-loss-calculus/The deadweight loss is about ½·t·ΔQ, so it grows with the square of the tax. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/monopoly-calculus/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/monopoly-calculus/Maximize p(q)·q − C(q): set MR = p + q·p′(q) equal to MC. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/lerner-index/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/lerner-index/(p − MC)/p = 1/|ε|, so a monopoly with positive marginal cost never prices where demand is inelastic. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/third-degree-discrimination/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/third-degree-discrimination/Set marginal revenue equal to marginal cost in each market; the less elastic market pays the higher price. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/two-part-tariff/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/two-part-tariff/With identical customers, charge a per-unit price equal to marginal cost and an entry fee equal to each customer's consumer surplus. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/monopsony-calculus/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/monopsony-calculus/An employer facing the wage curve w(L) hires where marginal revenue product equals the marginal cost of labor, w + L·w′(L). Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/pure-nash/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/pure-nash/Mark each player's best responses; any cell where both are best responses is a Nash equilibrium, and there may be several. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/mixed-strategies/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/mixed-strategies/In a mixed-strategy equilibrium each player mixes so as to make the other player indifferent between their choices. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/backward-induction/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/backward-induction/Solve a game tree from the end: each player looks ahead to how others will respond, which rules out empty threats. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/repeated-games/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/repeated-games/When a game repeats with no known last round, cooperation can last if players value the future enough. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/cournot/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/cournot/Firms choose quantities; each firm's best response depends on the other's output, and equilibrium output lies between monopoly and competition. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/bertrand/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/bertrand/Two firms selling identical goods and competing on price drive the price down to marginal cost. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/stackelberg/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/stackelberg/A leader who moves first, knowing the follower's best response, produces more and earns more than in Cournot. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/auctions/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/auctions/In a second-price sealed-bid auction, bidding your true value is a dominant strategy; in a first-price auction bidders shade their bids. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/edgeworth-box/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/edgeworth-box/An allocation is Pareto efficient when no trade can help one person without hurting the other; there the two MRSs are equal. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/exchange-equilibrium/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/exchange-equilibrium/Find the price ratio at which both people's demands, paid for with the value of their endowments, add up to what is available. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/welfare-theorems/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/welfare-theorems/Competitive equilibria are Pareto efficient, and with convex preferences any efficient allocation can be reached with lump-sum transfers. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/externality-optimum/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/externality-optimum/Set marginal benefit equal to marginal social cost; a tax equal to the marginal external damage at that quantity gets the market there. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/coase-theorem/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/coase-theorem/With clear property rights and low bargaining costs, the parties reach the efficient outcome whoever holds the rights; only who pays whom differs. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/public-goods-samuelson/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/public-goods-samuelson/Provide more of a public good while the sum of everyone's marginal benefits is above its marginal cost. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/common-resources/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/common-resources/Open access draws users until the average return equals the cost, which uses the resource more than is efficient. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/adverse-selection/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/adverse-selection/When sellers know quality and buyers don't, good products can be driven out of the market. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/moral-hazard/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/moral-hazard/When actions are hidden after a deal, deductibles, copays and pay tied to results can restore incentives. Intermediate Microeconomics · Economics Ladderhttps://teddyrookbook.com/economics/intermediate-microeconomics/signaling/Mon, 01 Jan 0001 00:00:00 +0000https://teddyrookbook.com/economics/intermediate-microeconomics/signaling/A costly signal can separate types when it costs the high type less, even if it adds nothing to productivity. Intermediate Microeconomics · Economics Ladder