University of Wisconsin: Economics 713

“The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” — Milton Friedman

1. The Matching Paradigm

• Nontransferable Utility
  • Stability and the Gale-Shapley Deferred Acceptance Algorithm
• Transferable Utility
  • Becker’s Conditions for Assortative Matching
  • Monge-Kantorovich Transportation Problem and Shapley-Shubik Assignment Problem

2. Partial Equilibrium

• The Exchange Paradigm: Double Auctions
• Partial Equilibrium: Market Supply and Market Demand Curves
• Market Power: Monopoly, Monopsony, Cournot Duopoly
• Externalities; Pigouvian Taxes, Coase Theorem and Missing Markets
• Public Goods

3. General Equilibrium

• Two Good Exchange Economy
  • Edgeworth box analysis: Welfare theorems, market power
• Walrasian Equilibrium as a Game: The Arrow – Debreu Existence Theorem
• Factor Markets
  • Rybczinski Theorem and Stolper-Samuelson Theorem
• Dynamic Stochastic General Equilibrium: Time and Uncertainty
  • Contingent commodities, Spot markets, forward contracts and option
  • Risk Sharing: Idiosyncratic vs. Aggregate Risk
  • The Informational Content of Prices: Rational Expectations Equilibrium

4.  Spatial Competition: Markets for Similar Goods 

•     Hotelling Location Model
•     Chamberlin’s Monopolistic competition
•     Rosen’s Hedonic Pricing

5.  Implicit Markets: Metaphorical Markets