Micro S1 Elisa
(1) Equilibrium and efficiency
Individuals: Demand function
What is the Law of Diminishing Marginal Utility
How does the curve on graph look like?
Formula to calculate demand function ✏ explain components
Calculate maximum satisfaction ✏
Firm: Supply function
How to get p: Formula in PPC ✏ (remember you can get Mc from derivating TC)
Shape of the curve - Eco with production : depend on Law of diminishing Marginal utility
Shape of the curve: Eco without prod : depends on technology
Define this law ( note: Marginal product how much unit of output will be produced by adding one unit of input (ex: material..) )
How to get profit function and optimal q ✏ (profit function - derivate)
Graph : shape of curve
Partial Equilibrium : price p* where Supply=Demand
Graph (in terms of p and q) : Demand downwards sloping / Supply upwards sloping
Where is surplus / where is shortage
Surplus calculations
Consumer Surplus ✏
Producer surplus ✏
Total Welfare ✏
How to maximise collective surplus ✏
Economic policies ⚠
(2) Equilibrium and efficiency
Definitions
Theorem 1 of Welfare economics concerning general equilibrium in PPC
General equilibrium - no production
New context: 2 goods, 2 markets: consumers own endowments, want to max utility with their BC - solution: exchange goods with other consumers
point w: initial endowment (before exchange) MRS of 2 consumers are no equal / goal exchange to the point when they are equal
have understood the global concept of calculating them / en refaire avec tous les cas d intervention possible / besoin de faire le graph parfaitement ⚠
Determine the general equilibrium 🏁
Maximizing utility for agent A is the how much demand c1 and c2 A is asking for
A will maximise subject to its budget constraint - formula budget consraint ✏
Calculations : you want to get optimum MRS - then isolate the consumption of the good you are not interested in
replace this equation in BC and deduce c1A by calculating
Calculate equilibrium
Note: the BC can also be written as "the excess of demand for con 1 + "" cons 2 =0
This reflects the Walras Law
Context: economy with money
know that supply= initial endowment and demand= c1+c2 (calculate this)
Know equalise Supply and Demand with the values ⚠
Is the trade Beneficial? ⚠
The graph
Indifference curve: combinations of 2 goods when equal satisfaction and utility ⚠
General equilibrium - with production ⛔
Difference partial equilibrium and general equilibirum
Pareto optimum
General equilibrium in PPC: 1st fundamental theorem of welfare