By Geoffrey A. Jehle, Philip J. Reny

The vintage textual content in complicated microeconomic conception, revised and increased.

‘Advanced Microeconomic Theory’ is still a rigorous, up to date general in microeconomics, giving the entire center arithmetic and glossy conception the complicated pupil needs to grasp.

Long recognized for cautious improvement of advanced concept, including transparent, sufferer clarification, this student-friendly textual content, with its effective theorem-proof association, and plenty of examples and routines, is uniquely potent in complicated courses.

New during this variation

General equilibrium with contingent commodities
Expanded therapy of social selection, with a simplified facts of Arrow’s theorem and whole, step by step improvement of the Gibbard-Satterthwaite theorem
Extensive improvement of Bayesian games
New part on effective mechanism layout within the quasi-linear application, deepest values atmosphere. the main entire and simple to persist with presentation of any text.
Over fifty new exercises.
Essential interpreting for college students at Masters point, these starting a Ph.D and complex undergraduates. A publication each expert economist wishes of their collection.

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Extra info for Advanced Microeconomic Theory (3rd Edition)

Sample text

13), we can form the indirect utility function by substituting these back into the direct utility function. 2) 33 CONSUMER THEORY =y pr1 + pr2 pr1 + pr2 = y pr1 + pr2 1/ρ ρ −1/r . 6. It is easy to see that v(p, y) is homogeneous of degree zero in prices and income, because for any t > 0, v(tp, ty) = ty((tp1 )r + (tp2 )r )−1/r = ty tr pr1 + tr pr2 −1/r = tyt−1 pr1 + pr2 −1/r = y pr1 + pr2 −1/r = v(p, y). 3) i = 1, 2. 1) to obtain (−1) ∂v(p, y)/∂pi ∂v(p, y)/∂y = (−1) = − pr1 + pr2 (−1/r)−1 pr1 + pr2 ypr−1 i = xi (p, y), pr1 + pr2 ypr−1 i −1/r i = 1, 2.

1 is very important. It frees us to represent preferences either in terms of the primitive set-theoretic preference relation or in terms of a numerical representation, a continuous utility function. But this utility representation is never unique. If some function u represents a consumer’s preferences, then so too will the function v = u + 5, or the function v = u3 , because each of these functions ranks bundles the same way u does. This is an important point about utility functions that must be grasped.

Hence, it contains a smallest number. The value e(p, u) is precisely this smallest number. Note that any solution vector for this minimisation problem will be non-negative and will depend on the parameters p and u. Notice also that if u(x) is continuous and strictly quasiconcave, the solution will be unique, so we can denote the solution as the function xh (p, u) ≥ 0. As we have seen, if xh (p, u) solves this problem, the lowest expenditure necessary to achieve utility u at prices p will be exactly equal to the cost of the bundle xh (p, u), or e(p, u) = p · xh (p, u).

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