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25 Terms

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Exogenous variables

determined outside of model, ex. government tax

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Endogenous variables

Determined inside the model, ex. what happens to the price of product x1

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optimization principle

People try to choose the best patterns of consumption they afford

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Equilibrium principle

prices adjust until the quantity demanded is equal to the quantity supplied

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Pareto improvement

If we can find a new allocation that makes at least one person better off and nobody worse off

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Competitive market

every renter pays p*, where supply = demand

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Discriminating monopolist

1 agent owns all apartments and they know everyones individual WTP and they all pay their own WTP, starting fro greatest WTP to least WTP

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Ordinary Monopolist

1 agent owns all apartment and knows demand curve but doesn’t know everyones WTP so can’t discriminate. Chooses a single price to max profits (might not be p*)

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Rent control

The government chooses some maximum price Pc (might not be p*)

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Budget lines

p1x1 + p2x2 = m

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taxes in dollars

(m ± t) or (p+t)

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percentage taxes

p(1+t) or m(1-t)

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Subsidies in dollars

(p-s) or (m+s)

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percentage subsidies

p(1-s) or m(1+s)

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budget function

x2 = m/p2 - p1×1/p2

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Completness axiom

any two bundles can be related with the weak preference

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Reflexivity axiom

any bundle is at least as good as itself

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Transitivity axiom

if x is preferred to y, and y is preferred to z, then x is preferred to z as well

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Monotoncity axiom

if y bundle of goods is more goods then x bundle of goods, then as y is preferred over x ( this assumption is made only before satiation point) ( more goods in a bundle is the one that is preferred)

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Convexity axiom

Prefer of variety or mix of goods. If you are indifferent between the good bundles of x and y, but you weakly prefer a 50/50 split that means your preference lies between the goods, have some sort of mix) rather than just having one good. - Applies to convex preferences only.

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MRS (can also be considered WTP)

The amount of good 2 they are willing to give up for a small increase in good 1. MRS is the slope of the indifference curve ( aka do derivative).

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what is cardinal utility

actual utility solely based on number value and not ranking

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