Beruflich Dokumente
Kultur Dokumente
L ECTURE 1: I NTRODUCTION
Fall, 2017
E-mail: yongcx2000@uibe.edu.cn
The Core of this part is to model individual behavior. There are two
main apprpaches:
The first approach is the preference based, i.e., the
decision-makers tastes are the primitive characteristics of the
individual.
This theory is developed by imposing some rationality axioms on
the agents preferences and analyzing the consequences of these
preferences for his behavior (his choice).
X RL
X = {x BL | xl > 0, l = 1, ..., L} = R+
L
1 Non-negativity: X RL
x = x + (1 )y X
We can then define the set of bundles the consumer can afford
given his wealth and the prices of various commodities.
for every p >> 0 and w > 0, p.x = w for all x x(p; w).
x(p, w) = x(p, w) for any p, w and > 0.
xl (p,w)
It is hard to know in general the sign of w since it may
depend on the type of commodity.
D EFINITION
xl (p,w)
A commodity l is normal at (p, w) if w > 0 and is inferior
otherwise
X
L
xl (p, w)
xj (p, w) + pl 0 (3)
pj
l=1
xi j p
Price elasticity is defined as ipj = pj xi
should be read as the
elasticity of demand for good i with respect to the price of good
j".
X
L
bl (p, w)lw = 1
l=1
This property means that only real opportunities matter since the
consumer choice is not affected if prices and wealth are
multiplied by the same factor (it does not change the budget set).
X
L
xl (p, w) xl (p, w)
pk + w = 0l = 1, . . . , L (4)
pk w
k=1
X
L
lk (p, w) + lw (p, w) = 0l = 1, . . . , L
k=1