Advanced Microeconomic Theory: An Intuitive Approach with Examples
: If the wage rate of labor goes up, the total cost of production increases. The speed at which your total cost climbs is exactly equal to the amount of labor you are currently employing. 3. Choice Under Uncertainty
The danger of this "math-first" approach is that students often lose sight of the human behavior being modeled. An intuitive approach asks: Why does a consumer prefer a bundle of goods? How does an increase in risk change a firm’s production?
┌──────────────────────────────┐ │ Consumer Decision Making │ └──────────────┬───────────────┘ │ ┌───────────────────────┴───────────────────────┐ ▼ ▼ ┌─────────────────────────────────┐ ┌─────────────────────────────────┐ │ Utility Maximization (UMP) │ │ Expenditure Minimization (EMP) │ ├─────────────────────────────────┤ ├─────────────────────────────────┤ │ Maximize utility subject to a │ │ Minimize spending required to │ │ budget constraint. │ │ achieve a target utility level. │ ├─────────────────────────────────┤ ├─────────────────────────────────┤ │ Yields: Marshallian Demand │ │ Yields: Hicksian Demand │ │ x*(p, w) │ │ h(p, u) │ └─────────────────────────────────┘ └─────────────────────────────────┘
Nash Equilibrium adapted for games of incomplete information.
To measure the intensity of risk aversion independent of wealth scaling, economists use the :
Modeled mathematically by the curvature of the utility function. A concave utility function (
Advanced Microeconomic Theory: An Intuitive Approach with Examples
