The Market - Readings Chapter 1,2 The Market Constructing a model ● Exogenous variable the price of this good is taken as determined by factors not

The Market - Readings Chapter 1,2 The Market Constructing a...

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Readings 1/3/2018 Chapter 1,2 The Market Constructing a model Exogenous variable: the price of this good is taken as determined by factors not discussed in this particular model Endogenous variable: the price of this good is determined by forces described in the model. Optimization and equilibrium Optimization principle: people try to choose the best patterns on consumption that they can afford Equilibrium principle: prices adjust until the amount that people demand is something equal to the amount that is supplied Demand Curve Reservation price: a person’s maximum willingness to pay for something Demand curve: a curve that relates the quantity demanded to a price Supply curve Competitive market: when each supplier is out to rent their apartments for the highest price a market would bear Supply curve: appears in both short run and long run forms Comparative statics Used to analyze the behaviors of the equilibrium price because it involves comparing to “static” equilibria without worrying about how the market moves from one equilibrium to another Can sometimes take a long time In some cases a shift in supply will also cause a shift in demand resulting in an equilibrium price that doesn’t change even though the demand and supply lines change Monopoly: a situation where a market is dominated by a single seller of a product Discriminating monopolist: when different people all pay different prices for the same good. Can happen in the event of an auction Who gets the apartments is the same but the amount they pay is different Ordinary monopolist: monopolist sets a price for the good that results in the largest possible revenue box → largest possible area under the demand curve
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  • Spring '08
  • KUHN

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