## Monday, October 26, 2009

### Learning Economics on a Budget: Part II

A couple of months ago, I started a YouTube channel with short videos on basic to intermediate microeconomics. In some ways, this project is designed to promote my textbook, but the project is mostly designed to expose people to economic reasoning and some basic economic theory without the typical barriers to entry.

I embedded my first unit of videos in a previous post. This post has my second unit of videos on Foundations of Consumer Behavior.

Unit II: Foundations of Consumer Behavior

In this first video, I discuss the assumptions on preferences that standard economic theory requires. These assumptions are very general, and can accommodate all sorts of economic decisions.

This second video fleshes out our characterization of preferences with the concepts of marginal utility and marginal rate of substitution.

If you prefer calculus-based derivations of formulas, you might like this video better than the previous one:

After fully characterizing the assumptions and geometry of preferences, it's natural to study constraints and how constraints interact with individual preferences.

Here's an example of how to apply the tools of budget constraints, indifference curves, and utility maximization to a problem from my book.

The previous example was fun, but it wasn't especially generalizable. This next video graphically demonstrates how indifference curves and budget constraints relate to demand curves.

If you prefer calculus, you may prefer this video to the previous one for demonstrating where demand curves come from.

This next video demonstrates one way (Hicks decomposition) of decomposing a price change into income and substitution effects.

You might ask, "Why do we care about income and substitution effects?" It turns out that decomposing price changes into these two effects can help us understand the Giffen Good Puzzle. Here's an explanation:

If you prefer calculus, this video mathematically decomposes income and substitution effects. This mathematical decomposition is called the Slutsky Equation.

This most recent video describes the role of diminishing marginal utility in establishing the law of demand. It turns out that most people mean to say that marginal rate of substitution diminishes (not marginal utility).

I am about to begin on my next unit on producer behavior. In the meantime, you should log into (or create) your YouTube account, rate my videos, comment on the progress of the channel, and subscribe to new videos. I am always uploading new videos. Enjoy!