北京大学中级微观经济学课件4英文.ppt

1,Shandong University,Intermediate Microeconomics,Yue QIAO,Yue QIAO,2,Shandong University Contents Intertemporal Choice Asset Markets Uncertainty,,,,,,,Yue QIAO,3,Shandong University Intertemporal Choice Budget constraint (1) (m1,m2) money in each time period is endowment, allow the consumer to borrow and lend at rate r (2) c2 = m2 + (1 + r)(m1 c1) (3) note that this works for both borrowing and lending, as long as it is at the same interest rate (4) various forms of the budget constraint: future value, present value (5) preferences convexity and monotonicity are very natural,,,,,,,Yue QIAO,4,Shandong University Intertemporal Choice,,,,,,,Yue QIAO,5,Shandong University Intertemporal Choice Comparative statics (1) if consumer is initially a lender and interest rate increases, he remains a lender.,,,,,,,Yue QIAO,6,Shandong University Intertemporal Choice Comparative statics (2) a borrower is made worse off by an increase in the interest rate,,,,,,,Yue QIAO,7,Shandong University Intertemporal Choice Comparative statics (3) Slutsky allows us to look at the effect of increasing the price of todays consumption (increasing the interest rate) a) change in consumption today when interest rate increases = substitution effect + (m1 c1) income effect b) assuming normality, an increase in interest rate lowers current consumption for a borrower, and has an ambiguous effect for lender c) provide intuition,,,,,,,Yue QIAO,8,Shandong University Intertemporal Choice Inflation,,,,,,,Yue QIAO,9,Shandong University Intertemporal Choice Present value (1) if the consumer can borrow and lend freely, then she would always prefer a consumption pattern with a greater present value. (2) Use of present value: the one correct way to rank investment decisions; linear operation, so relatively easy to calculate Bonds Installment loans,,,,,,,Yue QIAO,10,Shandong University Asset Market In the world of perfect certainty, all assets must have the same rate of return. (1) if one asset had a higher rate of return than another, who would buy the asset with the lower return? (2) Riskless arbitrage: a) two assets. Bond earns r, other asset costs p0 now. b) invest $1 in bond, get 1 + r dollars tomorrow. c) invest p0 x = 1 dollars in other asset, get p1x dollars tomorrow. d) amounts must be equal, which says that 1 + r = p1/p0. (3) p0 = p1/(1 + r) (4) think about the process of adjustment.,,,,,,,Yue QIAO,11,Shandong University Asset Market Example from stock market (1) index futures and underlying assets that make up the futures. (2) no risk in investment, even though asset values are risky, because there is a fixed relationship between the two assets at the time of expiration. Adjustments for differences in characteristics (1) liquidity and transactions cost (2) taxes (3) form of returns consumption return and financial return,,,,,,,Yue QIAO,12,Shandong University Asset Market But what determines the interest rate? (1) aggregate borrowing and lending behavior (2) consumption and investment choices over time What do financial institutions do? (1) adjust interest rate so that amount people want to borrow equals amount they want to lend (2) change pattern of consumption possible over time. Example of college student and retiree (3) example of entrepreneur and investors,,,,,,,Yue QIAO,13,Shandong University Uncertainty Contingent consumption (1) what consumption or wealth you will get in each possible outcome of some random event. (2) example: rain or shine, car is wrecked or not, etc. (3) consumer cares about pattern of contingent consumption: U(c1, c2). (4) market allows you to trade patterns of contingent consumptioninsurance market. Insurance premium is like a relative price for the different kinds of consumption. (5) can use standard apparatus to analyze choice of contingent consumption.,,,,,,,Yue QIAO,14,Shandong University Uncertainty Utility functions (1) preferences over the consumption in different events depend on the probabilities that the events will occur. (2) so u(c1, c2, 1, 2) will be the general form of the utility function. (3) under certain plausible assumptions, utility can be written as being linear in the probabilities, p1u(c1) + p2u(c2). That is, the utility of a pattern of consumption is just the expected utility over the possible outcomes.,,,,,,,Yue QIAO,15,Shandong University Uncertainty Risk aversion (1) shape of expected utility function describes attitudes towards risk.. (2) draw utility of wealth and expected utility of gamble. Note that a person prefers a sure thing to expected value.,16,Shandong University,。