Modern Microeconomics

Bookboon, 2013. — 231 p. — ISBN: 978-87-403-0419-0 This book provides the explanation of modern theories with simple examples. The consumer equilibrium, production function, game theory, information economics and social welfare are the major topics of this book. You will also find the systematic analysis of the consumer utility and behavior. It is most relevant topic to the decision making of consumer. The revealed preferences, rational choice, utility maximization, indirect utility function, Roy’s identity, Expenditure minimization function are the important topics of this book. Furthermore the book provides an explanation of modern theory of production function. There are different types of production functions and technology is used in each production function. Input output analysis, cost minimization, short run and long run costs, homogenous and heterogeneous production function, duality of costs and different types of technology in production function is strength of this book. The theory of Kalecki and kaldor of factor share in production function is also part of this book. Dr. Sanjay Rode has completed his PhD from Department of Economics, University of Mumbai in 2005. His area of research interest is Development Economics. He has worked on various national and international research projects in different areas in economics. He has written over twenty research papers and five books. He is working as a national economist on a project of the Asian Development Bank. He is teaching Macroeconomics to post-graduate students at the S. K. Somaiya College, University of Mumbai, India. Contents Preface Acknowledgement Consumer preference and utility Introduction Preference relations Utility function Lexicographic ordering Demand function Revealed Preference Theory The Weak Axiom of Revealed Preference (WARP) Indirect utility function Expenditure function The expenditure minimization problem The Hicksian demand function The Von Neumann-Morganstern utility function Measures of Risk Aversion Questions The Production Function Inputs to output function Technology specification Input requirement set The transformation function Monotonic technologies Convex technology Regular technology Cobb-Douglas technology Leontief technology The technical rate of substitution Elasticity of substitution Variation in scale Revised technical rate of substitution Homogenous and heterogeneous production function The Envelope theorem for constrained optimization Duality of cost and the production function Michael Kalechi’s theory Neo-Keynesian model of distribution (Kaldor Model) Questions Game Theory Introduction The rules of the Game The prisoner’s dilemma: A dominant strategy Equilibrium strategies The Cournot model Solution to the Cournot model by the Stackelberg equilibrium The Bertrand paradox Intertemporal dimensions The folk theorem Conclusion Questions Information Economics Introduction The asymmetric information model The principal-agent model: The production game Optimal contracts: The Broadway game Moral hazard: Hidden information Pooling and separating equilibrium: the salesman game Efficiency wage hypothesis Adverse selection Lemon models Adverse selection under uncertainty: Insurance game III Signalling Screening Questions General equilibrium and welfare economics Introduction The Walrasian equilibrium of a competitive economy Stability proposition Edgeworth’s exchange theory Welfare economics Pareto efficiency conditions The Edgeworth box diagram Welfare functions and the Pareto criterion First theorem of welfare economics The second theorem of welfare economics: (STWE) Market failure and second best Instances of market failure The Coase theorem Questions Bibliography Bookboon, 2013. — 231 p. — ISBN: 978-87-403-0419-0This book provides the explanation of modern theories with simple examples. The consumer equilibrium, production function, game theory, information economics and social welfare are the major topics of this book. You will also find the systematic analysis of the consumer utility and behavior. It is most relevant topic to the decision making of consumer. The revealed preferences, rational choice, utility maximization, indirect utility function, Roy’s identity, Expenditure minimization function are the important topics of this book. Furthermore the book provides an explanation of modern theory of production function. There are different types of production functions and technology is used in each production function. Input output analysis, cost minimization, short run and long run costs, homogenous and heterogeneous production function, duality of costs and different types of technology in production function is strength of this book. The theory of Kalecki and kaldor of factor share in production function is also part of this book. Dr. Sanjay Rode has completed his PhD from Department of Economics, University of Mumbai in 2005. His area of research interest is Development Economics. He has worked on various national and international research projects in different areas in economics. He has written over twenty research papers and five books. He is working as a national economist on a project of the Asian Development Bank. He is teaching Macroeconomics to post-graduate students at the S. K. Somaiya College, University of Mumbai, India. __Contents__PrefaceAcknowledgement**Consumer preference and utility**IntroductionPreference relationsUtility functionLexicographic orderingDemand functionRevealed Preference TheoryThe Weak Axiom of Revealed Preference (WARP)Indirect utility functionExpenditure functionThe expenditure minimization problemThe Hicksian demand functionThe Von Neumann-Morganstern utility functionMeasures of Risk AversionQuestions **The Production Function**Inputs to output functionTechnology specificationInput requirement setThe transformation functionMonotonic technologiesConvex technologyRegular technologyCobb-Douglas technologyLeontief technologyThe technical rate of substitutionElasticity of substitutionVariation in scaleRevised technical rate of substitutionHomogenous and heterogeneous production functionThe Envelope theorem for constrained optimizationDuality of cost and the production functionMichael Kalechi’s theoryNeo-Keynesian model of distribution (Kaldor Model)Questions **Game Theory**IntroductionThe rules of the GameThe prisoner’s dilemma: A dominant strategyEquilibrium strategiesThe Cournot modelSolution to the Cournot model by the Stackelberg equilibriumThe Bertrand paradoxIntertemporal dimensionsThe folk theoremConclusionQuestions **Information Economics**IntroductionThe asymmetric information modelThe principal-agent model: The production gameOptimal contracts: The Broadway gameMoral hazard: Hidden informationPooling and separating equilibrium: the salesman gameEfficiency wage hypothesisAdverse selectionLemon modelsAdverse selection under uncertainty: Insurance game IIISignallingScreeningQuestions **General equilibrium and welfare economics**IntroductionThe Walrasian equilibrium of a competitive economyStability propositionEdgeworth’s exchange theoryWelfare economicsPareto efficiency conditionsThe Edgeworth box diagramWelfare functions and the Pareto criterionFirst theorem of welfare economicsThe second theorem of welfare economics: (STWE)Market failure and second bestInstances of market failureThe Coase theoremQuestions **Bibliography** Obsah Preface Acknowledgement 1. Consumer preference and utility 1.1. Introduction 1.2. Preference relations 1.3. Utility function 1.4. Lexicographic ordering 1.5. Demand function 1.6. Revealed Preference Theory 1.7. The Weak Axiom of Revealed Preference (WARP) 1.8. Indirect utility function 1.9. Expenditure function 1.10. The expenditure minimization problem 1.11. The Hicksian demand function 1.12. The Von Neumann-Morganstern utility function 1.13. Measures of Risk Aversion 1.14. Questions 2. The Production Function 2.1. Inputs to output function 2.2. Technology specification 2.3. Input requirement set 2.4. The transformation function 2.5. Monotonic technologies 2.6. Convex technology 2.7. Regular technology 2.8. Cobb-Douglas technology 2.9. Leontief technology 2.10. The technical rate of substitution 2.11. Elasticity of substitution 2.12. Variation in scale 2.13. Revised technical rate of substitution 2.14. Homogenous and heterogeneous production function 2.15. The Envelope theorem for constrained optimization 2.16. Duality of cost and the production function 2.17. Michael Kalechi’s theory 2.18. Neo-Keynesian model of distribution (Kaldor Model) 2.19. Questions 3. Game Theory 3.1. Introduction 3.2. The rules of the Game 3.3. The prisoner’s dilemma: A dominant strategy 3.4. Equilibrium strategies 3.5. The Cournot model 3.6. Solution to the Cournot model by the Stackelberg equilibrium 3.7. The Bertrand paradox 3.8. Intertemporal dimensions 3.9. The folk theorem 3.10. Conclusion 3.11. Questions 4. Information Economics 4.1. Introduction 4.2. The asymmetric information model 4.3. The principal-agent model: The production game 4.4. Optimal contracts: The Broadway game 4.5. Moral hazard: Hidden information 4.6. Pooling and separating equilibrium: the salesman game 4.7. Efficiency wage hypothesis 4.8. Adverse selection 4.9. Lemon models 4.10. Adverse selection under uncertainty: Insurance game III 4.11. Signalling 4.12. Screening 4.13. Questions 5. General equilibrium and welfare economics 5.1. Introduction 5.2. The Walrasian equilibrium of a competitive economy 5.3. Stability proposition 5.4. Edgeworth’s exchange theory 5.5. Welfare economics 5.6. Pareto efficiency conditions 5.7. The Edgeworth box diagram 5.8. Welfare functions and the Pareto criterion 5.9. First theorem of welfare economics 5.10. The second theorem of welfare economics: (STWE) 5.11. Market failure and second best 5.12. Instances of market failure 5.13. The Coase theorem 5.14. Questions 6. Bibliography Sisältö Preface Acknowledgement Consumer preference and utility Introduction Preference relations Utility function Lexicographic ordering Demand function Revealed Preference Theory The Weak Axiom of Revealed Preference (WARP) Indirect utility function Expenditure function The expenditure minimization problem The Hicksian demand function The Von Neumann-Morganstern utility function Measures of Risk Aversion Questions The Production Function Inputs to output function Technology specification Input requirement set The transformation function Monotonic technologies Convex technology Regular technology Cobb-Douglas technology Leontief technology The technical rate of substitution Elasticity of substitution Variation in scale Revised technical rate of substitution Homogenous and heterogeneous production function The Envelope theorem for constrained optimization Duality of cost and the production function Michael Kalechi’s theory Neo-Keynesian model of distribution (Kaldor Model) Questions Game Theory Introduction The rules of the Game The prisoner’s dilemma: A dominant strategy Equilibrium strategies The Cournot model Solution to the Cournot model by the Stackelberg equilibrium The Bertrand paradox Intertemporal dimensions The folk theorem Conclusion Questions Information Economics Introduction The asymmetric information model The principal-agent model: The production game Optimal contracts: The Broadway game Moral hazard: Hidden information Pooling and separating equilibrium: the salesman game Efficiency wage hypothesis Adverse selection Lemon models Adverse selection under uncertainty: Insurance game III Signalling Screening Questions General equilibrium and welfare economics Introduction The Walrasian equilibrium of a competitive economy Stability proposition Edgeworth’s exchange theory Welfare economics Pareto efficiency conditions The Edgeworth box diagram Welfare functions and the Pareto criterion First theorem of welfare economics The second theorem of welfare economics: (STWE) Market failure and second best Instances of market failure The Coase theorem Questions Bibliography Modern microeconomics book explains the advanced version of traditional microeconomic theories. It provides the explanation from consumer utility to general equilibrium in economy. This book therefore explains the economic units such as consumers and producers and their economic behaviors. The utility maximization of these units is subject to different constraints. The utility maximization approach of consumer and firm is different but it is complementary with each other.