Lecture 17 - Economics 101A (Lecture 17) Stefano DellaVigna...

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Economics 101A (Lecture 17) Stefano DellaVigna October 27, 2009
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Outline 1. Comparative Statics of Equilibrium 2. Elasticities 3. Response to Taxes 4. Producer Surplus 5. Consumer Surplus
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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 ) 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 )
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Can write equilibrium as implicit function: Y S i ( p i ,w,r,α ) X D i ( p , M )=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
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Examples: 1. Fad. Good becomes more fashionable: ∂X D ∂α > 0= ∂p ∂α > 0 2. Recession in Europe. Negative demand shock for US f rms: ∂X D ∂α < 0= ∂p ∂α < 0 3. Oil shock. Import prices increase: ∂Y S ∂α < 0= ∂p ∂α > 0 4. Computerization. Improvement in technology. ∂Y
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Lecture 17 - Economics 101A (Lecture 17) Stefano DellaVigna...

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