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

Contents Instructor and TAs Requirements Course outline An example: market for apartments

Information in Competitive Markets In purely competitive markets all agents are fully informed about traded commodities and other aspects of the market. What about markets for medical services, or insurance, or used cars?

Structure Definition When to provide a public good – Efficient provision – Private provision: free-riding Variable quantities of public good – Efficient amount – Free-riding problem How to provide public goods? Demand revelation