Nir Dagan / Teaching

Economic Theory I

Academic year 1997/98

Nir Dagan, Esther Hauk, and Albrecht Ritschl


Consumer theory

The consumer's problem: Basic setup
The budget constraint, preferences, and the presentation of preferences with a utility function.
The consumer's choice
Preference maximization, and the demand function
Revealed preferences and the Slutsky equation
The weak and strong axioms of revealed preferences. Price indices, Slutsky equation. The substitution and income effect.
Consumer surplus and market demand
Consumer surplus: indivisible and perfectly divisible goods. Quasi-linear utility functions. Aggregation of individual demand functions. The price elasticity of demand, and its relation to revenue.

Firms and Production

Technology: production functions. Marginal productivity and the rate of technical substitution. Returns to scale.
Profit Maximization
Profit maximization and cost minimization. Cost functions. Marginal and average cost.
Supply functions
Supply of a competitive firm. The relationship between supply and marginal cost. Producer surplus. The industry supply curve.


Competitive equilibrium in a market. Entry and "normal" profits. Comparative statics, welfare, taxation, and redistribution.

Major Textbook