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 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 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 →

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 →