101A_lec18 - Economics 101A (Lecture 18) Stefano DellaVigna...

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Unformatted text preview: Economics 101A (Lecture 18) Stefano DellaVigna March 31, 2009 Outline 1. Comparative Statics of Equilibrium 2. Elasticities 3. Response to Taxes 4. Trade 1 Comparative statics of equilibrium • Nicholson, Ch. 12, pp. 403-406 (Ch. 10, pp. 293- 295, 9th) • Supply and Demand function of parameter α : — Y S i ( p i , w, r, α ) — X D i ( p , M , α ) • How does α a f ect p ∗ and Y ∗ ? • Comparative statics with respect to α • Equilibrium: Y S i ( p i , w, r, α ) = X D i ( p , M , α ) • Can write equilibrium as implicit function: Y S i ( p i , w, r, α ) − X D i ( p , M , α ) = 0 • What is dp ∗ /dα ? • Implicit function theorem: ∂p ∗ ∂α = − ∂Y S ∂α − ∂X D ∂α ∂Y S ∂p − ∂X D ∂p • What is sign of denominator? • Sign of ∂p ∗ /∂α is negative of sign of numerator • Examples: 1. Fad. Good becomes more fashionable: ∂X D ∂α > 0 = ⇒ ∂p ∗ ∂α > 2. Recession in Europe. Negative demand shock for US f rms: ∂X D ∂α < 0 = ⇒ ∂p ∗ ∂α < 3. Oil shock. Import prices increase: ∂Y S ∂α < 0 = ⇒ ∂p ∗ ∂α > 4. Computerization. Improvement in technology....
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This note was uploaded on 09/05/2009 for the course ECON 101a taught by Professor Staff during the Spring '08 term at Berkeley.

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101A_lec18 - Economics 101A (Lecture 18) Stefano DellaVigna...

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