ExogenousVariables: are determined by factors not discussed in the model (OR apts);EndogenousVariables: are determined by forces within the model (IR apts)Optimizationprinciple: people try to choose the best patterns of consumption they can affordEquilibriumprinciple: prices adjust until the amount that people demand of something is equal to the amount that is suppliedReservation Price: the highest price that a person is will accept and still purchase the good, the point where they’re indifferentCompetitiveMarket: many independent landlords, each out to sell apts at the highest price possible. It’s Pareto Efficient.Effectof Creating Condominiums: equilibrium price is unchanged because demand and supply both shift left by the same amountEffect of Tax on apts: equilibrium price P* remains unchanged because supply curve and demand curve remain unchanged. Landlords bare the brunt of the tax themselves.EffectofRentControl: if max price is set less than P*->excess demand. Different people will get apts than in the competitive market depending on who has more time to shop.DiscriminatingMonopolist: Landlord decides to auction each apt off to the highest bidder, so each apt is sold for the highest price possible. Same buyers receive apts as in competitive market. Each buyer pays their reservation price. It’s Pareto Efficient.OrdinaryMonopolist: Landlord doesn’t sell apts at equilibrium price p*, but chooses his selling price to maximize revenue. Not all apts will be sold, but maximum revenue will be made. Not Pareto Efficient.ParetoImprovement: way to make someone better off w.out making others worse off; ParetoInefficient: if can make Pareto Improvements
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