Course 001: Topic 2

Microeconomic Theory

Topic 2: Choice Theory and Consumer Demand

• Lecture Slides
• Addendum (Time Inconsistency)
• Problem Set
• Answer Key

Applications and Links

• The National Food Security Act: This issue of Yojana has several nice articles on the NFSA. The one by Ashok Kotwal, Milind Murugkar and Bharat Ramaswamy is a nice review of various issues involved. It discusses the cash-vs-kind debate and presents the infra-marginality argument we discussed in class. This argument implies that most households choices should not be affected if the PDS entitlements are given in cash instead.
• Women's labour force participation: In spite of women getting more educated and rising wages, women's labour force participation in India has stagnated since the 1980s and is much lower compared to other countries at similar income levels. Klasen and Pieters analyze possible reasons why women choose to stay at home and its economic implications.
• Anomalies: Human behaviour in controlled laboratory settings does not always agree with the predictions of selfish money maximizing models. Moreover, they often depart from these predictions in systematic rather than haphazard ways, i.e., there is a method to the madness. In this article, Kahneman, Knetsch and Thaler talk about curious behaviour like the endowment effect. This article by Camerer and Thaler reviews the ultimatum and dictator games I briefly mentioned in the lecture.
• Happiness and memory: Daniel Kahneman, winner of the Nobel Prize and one of the pioneers who brought psychology closer to economics, discusses the difference between the experiential self and the remembering self in this TED talk.  He says decisions tend to be based not on what we experience at the moment but what we remember about that experience later, and the difference can be substantial.