Lecture C4 (2020-09-29): Cardinal Social Welfare

In this lecture, we visit the foundations of different notions of utility. The lecture starts with a discussion of ordinal utility at the individual level and discusses a common example (from the St. Petersburg Paradox) that suggests cardinal utility may be better at predicting individual human behavior. We then describe how cardinal utility allows for an absolute scale on which to combine individual utilities into social welfare functions. The bulk of the lecture describes different features of classes of social welfare function (Benthamite (Utilitarian), Rawlsian (minimax), Egalitarian, and Cobb--Douglas). Ultimately, we hint at how the subjectivity underlying the choice of social-welfare function suggests that perhaps an ordinal framework (such as Pareto optimality) may provide for more defensible ways to model social welfare when discussing economic markets.

Lecture C3 (2020-09-24): Benefits and Costs Across Individuals

In this lecture, we go into detail about the graphical solution to maximizing the intertemporal social welfare function (i.e., balancing present and future benefits and costs consistent with temporal discounting). We then pivot to considering social welfare functions that balance across individuals instead of across times. We use these social welfare functions to motivate why another framework is needed to be more practical, which will allow us to discuss Pareto optimality in the next lecture.

Lecture C2 (2020-09-22): Aggregating Benefits and Costs Across Time

In this lecture, we review the basic shape of benefit and cost functions and how they relate to the analysis of marginal benefit and marginal cost. We then pivot to thinking about the effect of time and temporal discounting on benefits and costs. That allows us to move from utility functions (with their indifference curves) to social welfare functions. The budget constraint line from consumer choice theory is replaced by the production possibility frontier (PPF), and a new version of the equimarginal principle is introduced -- where the marginal rate of transformation (MRT) equals the marginal rate of substitution (MRS). This is all done graphically. In future lectures, we will give more concrete examples of solving for optimal resource allocation across time.

Lecture C1 (2020-09-17): Economic Efficiency and Environmental Protection

In this lecture, we begin to connect the microeconomics foundations from the previous lecture to topics related to sustainability – specifically pollution abatement and conservation problems. We introduce the basic framework of benefits and costs and how maximal net benefits occur when marginal costs and marginal benefits are equal (the equimarginal principle). We discuss the basic concave shape of benefits curves and convex shape of cost curves and how they relate to the typical ordering of intervention strategies in sustainability.

Lecture B5A (2020-09-15): Some Demanding Exercises

This lecture covers some concrete examples of calculations related to demand curves, demand functions, and inverse demand functions. It covers price elasticity of demand calculations as well as consumer surplus calculations. There is a discussion of the meaning of these quantities as well.

Lecture B5 (2020-09-10): Working with Demand Curves

In this lecture, we dig deeper into demand curves (and the related topics of the demand function and inverse demand function). We discuss normal goods, inferior goods, Giffen goods, and Veblen goods. We then start to introduce consumer surplus and elasticity (with a focus on Price Elasticity of Demand, PED).

Lecture B4 (2020-09-08): From Indifference to Demand

In this lecture, we round out our discussion of the shape of indifference curves and marginal-rate of substitution. We cover not only indifference curves for multiple goods but also consider indifference curves when there is a mixture of goods and bads. We then pivot back to consumer choice theory and the role of price and income. That allows us to introduce so-called "normal goods" and "inferior goods." We close with a hint of our future work using demand curves (and demand and inverse demand functions) to do calculations related to consumer choice.

Lecture B3 (2020-09-03): Making Utility More Useful

In this lecture, we continue to discuss how to interpret the shape of different indifference curves. Indifference curves are the level sets of multi-commodity utility functions, and thus understanding these shapes helps us model the different ways that individuals can prefer one option to another. We close the lecture with a discussion of how the slope of the indifference curve (marginal rate of substitution, MRS) relates to the budget constraint line and how a consumer with a mismatch between the MRS and the budget constraint line will (for goods with diminishing marginal returns) trade goods until the two are equal. This "equi-marginal principle" is a property that maximizes utility in multi-commodity situations where two goods both have diminishing marginal returns.

Lecture B2 (2020-09-01): Shaping Up Understanding of Utility and Indifference

In this lecture, we work toward better understanding the meaning behind the shape of different utility functions and indifference curves.