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
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
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
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.
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
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