Structure State contingent consumption (依情 形而定的消费） State-contingent budget constraint Preferences under uncertainty Choice under uncertainty Risk aversion Diversification and risk spreading

Structure Economic profit Short-run profit maximization –Comparative statics Long-run profit maximization Profit maximization and returns to scale Revealed profit maximization

Structure When to sell an asset? –Rate-of-return Arbitrage Taxation of asset returns Applications Financial intermediaries

Properties of Demand Functions Comparative statics analysis （比较 静态分析）of ordinary demand functions -- the study of how ordinary demands x1

Effects of a Price Change What happens when a commodity’s price decreases? –Substitution effect (替代效应）: the commodity is relatively cheaper, so consumers substitute it for now relatively more expensive other commodities

Structure Rational constrained choice Computing ordinary demands – Interior solution （内在解） –Corner solution （角点解） – “Kinky” solution Example: Choosing taxes

Contents Describe budget constraint –Algebra –Graph Describe changes in budget constraint Government programs and budget constraints Non-linear budget lines

Structure Endowments Budget constraints with endowments Net demands Labor supply

Contents Describe preferences Indifference curves Well-behaved preferences Marginal rate of substitution

Revealed Preference Analysis Suppose we observe the demands (consumption choices) that a consumer makes for different budgets. This reveals information about the consumer’s preferences. We can use this information to