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Microeconomic Foundations I:
Choice and Competitive Markets
David M. Kreps

Book Description | Endorsements
Preface [in PDF format] | Chapter 1 [in PDF format]

TABLE OF CONTENTS:

Preface xiii

Chapter One. Choice, Preference, and Utility 1

  • 1.1. Consumer Choice: The Basics 1
  • 1.2. Proving Most of Proposition 1.2, and More 5
  • 1.3. The No-Better-Than Sets and Utility Representations 7
  • 1.4. Strict Preference and Indifference 9
  • 1.5. Infinite Sets and Utility Representations 10
  • 1.6. Choice from Infinite Sets 15
  • 1.7. Equivalent Utility Representations 17
  • 1.8. Commentary 18
  • Bibliographic Notes 23
  • Problems 23

Chapter Two. Structural Properties of Preferences and Utility Functions 30

  • 2.1. Monotonicity 31
  • 2.2. Convexity 32
  • 2.3. Continuity 35
  • 2.4. Indifference Curve Diagrams 38
  • 2.5. Weak and Additive Separability 39
  • 2.6. Quasi-linearity 43
  • 2.7. Homotheticity 44
  • Bibliographic Notes 45
  • Problems 45

Chapter Three. Basics of Consumer Demand 50

  • 3.1. The Consumer's Problem 50
  • 3.2. Basic Facts about the CP 52
  • 3.3. The Marshallian Demand Correspondence and Indirect Utility Function 54
  • 3.4. Solving the CP with Calculus 56
  • Bibliographic Notes 63
  • Problems 64

Chapter Four. Revealed Preference and Afriat's Theorem 67

  • 4.1. An Example and Basic Ideas 67
  • 4.2. GARP and Afriat's Theorem 70
  • 4.3. Comparative Statics and the Own-Price Effect 74
  • Bibliographic Notes 77
  • Problems 78

Chapter Five. Choice under Uncertainty 79

  • 5.1. Two Models and Three Representations 79
  • 5.2. The Mixture-Space Theorem 89
  • 5.3. States of Nature and Subjective Expected Utility 101
  • 5.4. Subjective and Objective Probability and the Harsanyi Doctrine 108
  • 5.5. Empirical and Theoretical Critiques 110
  • Bibliographic Notes 116
  • Problems 116

Chapter Six. Utility for Money 123

  • 6.1. Properties of Utility Functions for Money 123
  • 6.2. Induced Preferences for Income 134
  • 6.3. Demand for Insurance and Risky Assets 138
  • Bibliographic Notes 140
  • Problems 140

Chapter Seven. Dynamic Choice 148

  • 7.1. The Standard Strategic Approach 149
  • 7.2. Dynamic Programming 152
  • 7.3. Testable Restrictions of the Standard Model 153
  • 7.4. Three Alternatives to the Standard Model 156
  • Bibliographic Notes 161
  • Problems 161

Chapter Eight. Social Choice and Efficiency 166

  • 8.1. Arrow's Theorem 166
  • 8.2. What Do We Give Up? 172
  • 8.3. Efficiency 175
  • 8.4. Identifying the Pareto Frontier: Utility Imputations and Bergsonian Social Utility Functionals 176
  • 8.5. Syndicate Theory and Efficient Risk Sharing: Applying Proposition 8.10 184
  • 8.6. Efficiency? 192
  • Bibliographic Notes 194
  • Problems 194

Chapter Nine. Competitive and Profit-Maximizing Firms 197

  • 9.1. The Production-Possibility Set 198
  • 9.2. Profit Maximization 199
  • 9.3. Basics of the Firm's Profit-Maximization Problem 201
  • 9.4. Afriat's Theorem for Firms 207
  • 9.5. From Profit Functions to Production-Possibility Sets 211
  • 9.6. How Many Production-Possibility Sets Give the Same Profit Function? 213
  • 9.7. What Is Going On Here, Mathematically? 216
  • 9.8. Differentiability of the Profit Function 219
  • 9.9. Cost Minimization and Input-Requirement Sets 222
  • 9.10. Why DoWe Care? 228
  • Bibilographic Notes 229
  • Problems 229

Chapter Ten. The Expenditure-Minimization Problem 233

  • 10.1. Defining the EMP 233
  • 10.2. Basic Analysis of the EMP 235
  • 10.3. Hicksian Demand and the Expenditure Function 236
  • 10.4. Properties of the Expenditure Function 238
  • 10.5. How Many Continuous Utility Functions
  • Give the Same Expenditure Function? 240
  • 10.6. Recovering Continuous Utility Functions from Expenditure Functions 247
  • 10.7. Is an Alleged Expenditure Function Really an Expenditure Function? 248
  • 10.8. Connecting the CP and the EMP 254
  • Bibliographic Notes 255
  • Problems 255

Chapter Eleven. Classic Demand Theory 258

  • 11.1. Roy's Identity and the Slutsky Equation 258
  • 11.2. Differentiability of Indirect Utility 262
  • 11.3. Duality of Utility and Indirect Utility 269
  • 11.4. Differentiability of Marshallian Demand 274
  • 11.5. Integrability 279
  • 11.6. Complements and Substitutes 283
  • 11.7. Integrability and Revealed Preference 284
  • Bibliographic Notes 286
  • Problems 287

Chapter Twelve. Producer and Consumer Surplus 289

  • 12.1. Producer Surplus 289
  • 12.2. Consumer Surplus 296
  • Bibliographic Notes 304
  • Problems 304

Chapter Thirteen. Aggregating Firms and Consumers 306

  • 13.1. Aggregating Firms 307
  • 13.2. Aggregating Consumers 310
  • 13.3. Convexification through Aggregation 318
  • Bibliographic Notes 326
  • Problems 326

Chapter Fourteen. General Equilibrium 329

  • 14.1. Definitions 329
  • 14.2. Basic Properties ofWalrasian Equilibrium 333
  • 14.3. The Edgeworth Box 335
  • 14.4. Existence ofWalrasian Equilibria 338
  • 14.5. The Set of Equilibria for a Fixed Economy 351
  • 14.6. The Equilibrium Correspondence 354
  • Bibliographic Notes 354
  • Problems 355

Chapter Fifteen. General Equilibrium, Efficiency, and the Core 358

  • 15.1. The First Theorem ofWelfare Economics 359
  • 15.2. The Second Theorem ofWelfare Economics 362
  • 15.3. Walrasian Equilibria Are in the Core 366
  • 15.4. In a Large Enough Economy, Every Core Allocation Is a Walrasian-Equilibrium Allocation 370
  • 15.5. Externalities and Lindahl Equilibrium 380
  • Bibliographic Notes 383
  • Problems 383

Chapter Sixteen. General Equilibrium, Time, and Uncertainty 386

  • 16.1. A Framework for Time and Uncertainty 386
  • 16.2. General Equilibrium with Time and Uncertainty 389
  • 16.3. Equilibria of Plans, Prices, and Price Expectations: I. Pure Exchange with Contingent Claims 392
  • 16.4. EPPPE: II. Complex Financial Securities and Complete Markets 402
  • 16.5. EPPPE: III. Complex Securities with Real Dividends and Complete Markets 418
  • 16.6. Incomplete Markets 419
  • 16.7. Firms 424
  • Bibliographic Notes 431
  • Problems 432

About the Appendices 437

Appendix One: Mathematical Induction 439

Appendix Two: Some Simple Real Analysis 441

  • A2.1. The Setting 441
  • A2.2. Distance, Neighborhoods, and Open and Closed Sets 441
  • A2.3. Sequences and Limits 445
  • A2.4. Boundedness, (Completeness), and Compactness 446
  • A2.5. Continuous Functions 447
  • A2.6. Simply Connected Sets and the Intermediate-Value Theorem 448
  • A2.7. Suprema and Infima; Maxes and Mins 448
  • A2.8. The Maximum of a Continuous Function on a Compact Set 449
  • A2.9. Lims Sup and Inf 450
  • A2.10. Upper and Lower Semi-continuous Functions 451

Appendix Three: Convexity 452

  • A3.1. Convex Sets 452
  • A3.2. The Separating- and Supporting-Hyperplane Theorems 457
  • A3.3. The Support-Function Theorem 459
  • A3.4. Concave and Convex Functions 461
  • A3.5. Quasi-concavity and Quasi-convexity 463
  • A3.6. Supergradients and Subgradients 466
  • A3.7. Concave and Convex Functions and Calculus 468

Appendix Four: Correspondences 469

  • A4.1. Functions and Correspondences 470
  • A4.2. Continuity of Correspondences 471
  • A4.3. Singleton-Valued Correspondences and Continuity 474
  • A4.4. Parametric Constrained Optimization Problems and Berge's Theorem 475
  • A4.5. Why this Terminology? 477

Appendix Five: Constrained Optimization 479

Appendix Six: Dynamic Programming 485

  • A6.1. Several Examples 485
  • A6.2. A General Formulation 489
  • A6.3. Bellman's Equation 494
  • A6.4. Conserving and Unimprovable Strategies 496
  • A6.5. Additive Rewards 501
  • A6.6. States of the System 504
  • A6.7. Solving Finite-Horizon Problems 506
  • A6.8. Infinite-Horizon Problems and Stationarity 509
  • A6.9. Solving Infinite-Horizon (Stationary) Problems with Unimprovability 512
  • A6.10. Policy Iteration (and Transience) 516
  • A6.11. Value Iteration 518
  • A6.12. Examples 521
  • A6.13. Things Not Covered Here: Other Optimality Criteria; Continuous Time and Control Theory 527
  • A6.14. Multi-armed Bandits and Complexity 528
  • A6.15. Four More Problems You Can Solve 530

Appendix Seven: The Implicit Function Theorem 534

Appendix Eight: Fixed-Point Theory 535

References 543
Index 551

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File created: 11/11/2014

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