2 uncertainty basic concepts

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We all live in an uncertain world, how to model uncertainty in economic problems? We learn this in these two videos. In the first video, an introduction to expected utility theory is given, whereby with the help of a numerical example, expected value of a gamble and expected utility are found.

In the second video, using different utility functions over wealth, it is shown that a person can be risk lover, risk averse and risk neutral. Continue reading →

3 basic videos on Buying and Selling Model

In these videos, we look at the model, where there is no outside income but the value of endowment defines consumer’s income.

First video, sets the base of the model by distinguishing between gross demand and net demand. Second video, discusses how to draw budget line in this model. Continue reading →

3 SE and ME decomposition videos for Normal Goods, Perfect Substitutes and Perfect Complements

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For next two days we will discuss substitution and income effects. What are these? When the price of a good changes, it changes demand for that commodity. Well, this entire change can be broken down into two effects, one substitution effect and other income effect.

In these videos, we have presented the decomposition of price effect into substitution effect and income effect for normal goods, perfect complements and perfect substitutes. Continue reading →

2 Price consumption curves videos

In these videos we discuss what is price consumption curve and how to derive demand curve from these. Price consumption curve is the locus of equilibrium points when price of one of the good changes.

One application of derivation of PCC and hence demand curve for perfect complements is also done for better understanding Continue reading →

5 Revealed preference concepts you must know

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Here in these videos, we discuss the concept of revealed preference. We start by explaining what is the meaning of revealed preference and then define and explain what are WARP and SARP. We conclude this presentation by two simple numerical examples about how to check whether WARP and SARP are satisfied.

Hopefully, this presentation on revealed preference will be useful to you. Continue reading →

3 MRS conditions for Cobb Douglas, Perfect Complements and Perfect Substitutes

In the following videos, we try to find MRS for several utility functions, say, cobb douglas, perfect complements, perfect substitutes. MRS calculates the rate at which one good is substituted for another, keeping utility constant. MRS for Cobb Douglas changes at every point along an indifference curve. MRS for perfect complements is same along a vertical or horizontal strip, while it is not defined at the kink. In case of perfect substitutes, MRS is same along the entire indifference curve.

Continue reading →

4 questions about Normal goods,Inferior goods and Giffen goods

In following videos we define what are normal and inferior goods. As income increases, people shift away from inferior goods, while normal goods are those that have direct relation between income and quantity demanded. We also show how to derive Income offer curve and Engel curve for Normal and Inferior goods.

In the other video, we discuss giffen goods, which are exception to the law of demand.

Let us explore these concepts in detail in the following videos.

Continue reading →

4 things you must know about the shape of different indifference curves

Here, we draw indifference curves of several utility functions. Well, our motivation is to draw them, picking up points and convincing ourselves, that yes, this is indeed the shape of an indifference curve.

We know it well, that, along an indifference curve, utility is constant, so, we choose any arbitrary value of a utility and then pick points of x and y, which, according to a given utility function, results in the same utility (as our choosen arbitrary utility)

Let us do this exercise for our basic preferences, say, perfect complements, perfect substitutes, max utility function and cobb douglas Continue reading →

2 concepts related to Marginal Utility

We will discuss two concepts related to marginal utility. Firstly, if you are given any utility function, how do you derive marginal utility of a commodity from it. Secondly, how can you derive marginal rates of substitution from marginal utilities. These concepts will help you in understanding theoretical background related to these two important basic concepts and then you will be able to apply it to any specific utility function. Continue reading →

Budget set in case of taxes

This video explains the effect of tax, after the consumption of some amount of the product, on the budget set. Continue reading →

6 concepts related to budget line

In the following videos, we look at some basic concepts related to Budget line. In the first video, we distinguish between budget set and budget line and provide an economic intuition for slope of the budget line.

Then we try to look how budget line shifts if price of one of the commodity changes or if income of the consumer changes or there is a tax or subsidy on any one commodity or there is a rationing of any one product. These applications help us to understand how budget line shifts or rotates in different scenarios. Continue reading →

5 Basic questions of Introductory Consumer Theory

In the following videos we try look at five most basic questions of introductory consumer theory. We try to answer, when is the consumer rational? What are the different axioms which consumer preferences should satisfy for preferences to be rational?

Then, we look at what is utility? Can utility be represented by a number or it is only rank-based (ordinal)? We find that utility is ordinal. Continue reading →

5 Mathematical Derivation of Demand Curves of Cobb Douglas, Perfect Complements, Perfect Substitutes, Quasi-linear and max utility functions

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In the following videos we show how to derive marshallian demand vector of the form x*(p,m) and y*(p,m)

Budget equation is m=p1x + p2y

We have several utility functions. Our motive is to derive maximum utility subject to the budget or income given. Continue reading →

Shift in budget line when income changes

Suppose if income of the consumer increases, she can experience an expansion of her budget and hence budget line would move outwards in a parallel manner, assuming prices remain constant. Continue reading →

Shift in budget line when price changes

This video explains, if price of one of the commodity changes, how does this affect the budget line. Continue reading →

Perfect Complements

Perfect complements are those goods, which have to be used together to satisfy a want. For example: car and fuel. This video explains what are perfect complements, what is the form of their utility function and how to draw an indifference curve of perfect complements. Continue reading →

Perfect Substitutes

Perfect substitutes are those commodities which give equal satisfaction to an individual. For example: coke and pepsi. This video explains what are perfect substitutes, how does their utility function look like and how to draw their indifference curve Continue reading →

How would you derive MRS from MU

Marginal rate of substitution (y for x) is the amount of y, individual gives up, for one more additional unit of x. MRSyx is the ratio of marginal utilities of x and y Continue reading →

How would you derive Marginal utility from a given utility function

Marginal utility is the additional utility derived from the consumption of one more unit of commodity consumed. This video explains, when you are given any utility function, how can you derive marginal utility function for the same. Continue reading →