Tuesdays & Thursdays, 10:30–11:55 a.m. US//Pacific Time

Professor: KC Border

Email: kcb@caltech.edu

It is not enough that you understand about applied science in order
that your work may increase man's blessings. Concern for man himself
and his fate must always form the chief interest of all technical
endeavors, concern for **the great unsolved problems of the
organization of labor and the distribution of goods**—in order
that the creations of our minds shall be a blessing and not a curse to
mankind.

Never forget this in the midst of your diagrams and equations.

—Albert Einstein, Address to the Students at Caltech (February 16, 1931).

Do markets lead to efficient allocation of resources? Are markets fair? (What does that last question mean anyhow?) What is the role of prices in decentralizing decision-making? Are some kinds of taxes worse than others? What is the difference in short-run and long-responses in the economy? Is it possible to make efficient temporal allocation decisions one instant at a time? Why is the health insurance market so problematical? What's wrong with monopoly power?

These are some of the questions that we will consider in this course. In order to discuss them, we will adopt the use of powerful toy models that we can wrap our minds around. This involves the use of mathematics at a level you should be familiar with, even if some of the tools you may not have seen before. The mathematics we use is based on what you already know, but there may be some result you are unfamiliar with. The course evaluations have suggested that the level of mathematics was that of the “analytical track.”

This web site may change throughout the course of the
term, so come back often.

The recommended textbook for this course is Hal Varian's
*Microeconomic Analysis*, third edition, 1992, New York: Norton.

Grades will be based in part on four to six homework assignments, at approximately two-week intervals. If there is demand, then exams may also be used. Attendance may also be graded. Details to be determined.

Collaboration is allowed on the homework, but your write-up must be in your own words and may not be copied. Please ask for clarification if anything is unclear.

- HW 1. Due Thursday, October 15.

Dates indicate latest revision

- Lecture 1 ()
- Lecture 2 ()
- Lecture 3 ()
- Lecture 4 ()
- Lecture 5 ()
- Lecture 6 ()
- Lecture 7 ()
- Lecture 8 ()
- Lecture 9 ()
- Lecture 10 ()
- Lecture 11 ()
- Lecture 12 ()
- Lecture 13 ()
- Lecture 14 ()
- Lecture 15 ()
- Notes on Arrow's Theorem ()
- Lecture 16 ()
- Lecture 17 ()
- Lecture 18 ()
- Lecture 19 ()

Some of these notes are unfinished. While I have been careful in the preparation of these notes, I am not good at proofreading my own writing, so there may be some errors. If you find any, please let me know.

- Desultory notes on aspects of maximization, including convex analysis (1.4 mb). Updated
- Notes on linear algebra. Updated

- Week 1
- Maximization of a function of one variable. Updated
- Increasing differences and comparative statics. Updated
- Maximization of a function of several variables. Updated
- More than you want to know about quadratic forms. Updated
- Comparative statics. Updated

- Week 2
- Homogeneous functions. Updated
- Envelope theorem. Updated
- Notes on support functions, or profit and cost functions. Updated
- Traditional approach to cost minimization. Updated

- Week 3
- Production possibility frontier and marginal costs. Updated
- Saddlepoints and constrained maximization. Updated
- Linear programming and saddlepoints. Updated
- Simplex Algorithm. Updated

- Week 6
- Preference relations. Updated
- Neoclassical demand theory. Updated
- Duality and demand theory. Updated
- The weak axiom of revealed preference. Updated
- Rational choice. Updated
- The Integrability Problem. Updated

- Week 8
- Notes on Uncertainty. Updated

- First Welfare Theorem. Updated
- Second Welfare Theorem. Updated
- Second Welfare Theorem via Saddlepoints. Updated

- Auction Design. Updated
- Revenue Equivalence. Updated
- Moral Hazard in Teams. Updated -->

Updated by KC Border.