3.1: The Laws of Preference

3.2: Utility and Preference

3.3: Characteristics of Indifference Curves

Properties of indifference curves:

3.4: More on Goods and Bads

3.5: The Sources and Content of Preferences

4.1: The Optimum of the Consumer

4.2- 4.3: Complements,  Substitutes and Consumer's Response 

Properties of PEP:
  1. As Px falls, income I is held constant, the conumer attains higher utility. 
  2. When the PEP slopes downward, the consumer responds to a fall in Px by choosing more X but less of the numeraire good Y
  3. The intercepts are the "choke prices" where the consumer buys none of the good at the high price
  4. It may even curl backward like a Giffen good, where the lower price temporarily causes the consumer to buy less (violates law of demand)

4.4: Income and Substitution Effects of a Price Change

  1. Income effect: A fall in Px increases the consumer's real income-- meaning, he or she could buy the same bundle of goods as before but have some left over
  2. Pure Substitution Effect: Even if real income or utility had remained the same, more X would have been purchased anyway at the lower Px

4.5: From Individual Demand to Market Demand

Conclusion: the market demand curve is the horizontal sum of the individual demand curves: \(X \equiv \sum^ N _{i = 1} x_i\)

Class Notes:

                            Wheat     Corn
Anderson    30(1\3)         10(2/3)
Brooks        20(1/3)           20(2/3)
Total:            50                    30
Who specializes in what?
Terms of trade: 20W = 10C 
After specialization and trade:
Now..
                            Wheat     Corn