What Is the Question of the Chapter? Suppose we observe a collection of a consumer's choices, can we discover his/her preference? Is this possible at all?fso, under what conditions is this possible? (This is the reverse question of finding the optimal choice)

What Do We Do in This Chapter? We conduct comparative statics analysis of ordinary demand functions the study of how ordinary demands*(p,,P2,y) and x2*(p1,p2,y) change as prices1,P2 and income y change. Theoretically, nothing new

Where Are W e Doing in This Chapter? After modeling consumers' choice set and his preference (represented by utility functions), we now put them together and model how he/she makes optimal choice. In mathematical terms, this is constrained maximization problem; In economics, this is rational choice problem

What Do We Do in This Chapter? We create a mathematical measure of preference in order to advance our analysis

Where Are We in the Course? We are studying the 1st of the three blocks of microeconomics: Consumer behavior, production theory, and market equilibrium Within the 1st block, we are working on the 2nd of the three components: choice set, preference, and consumer demand

Where are We in the Course? We are working on the 1st of the 3 components of microeconomics: Consumer behavior, production theory, and market. There are three elements of consumer behavior: budget constraint, preference, and choices

Market Equilibrium A market is in equilibrium when total quantity demanded by buyers equals total quantity supplied by sellers

From Individual to Market Demand Functions Think of an economy containing n consumers, denoted by= 1, .. ,n. Consumer is' ordinary demand function for commodity j is

Monetary Measures of Gains-to- Trade You can buy as much rice as you wish at RMB1 per kilogram once you enter the gasoline market. Q: What is the most you would pay to enter the market?

What Are We doing in this Chapter? We apply our basic framework of consumer choice to study issues of choices across different time periods, e Again in terms of theoretical framework, not much is new!