Chapter9 - Chapter 9 Buying and Selling 1 Up until now...

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Chapter 9 - Buying and Selling 1. Up until now, people have only had money to exchange for goods. But in reality, people sell things they own (e.g., labor) to acquire goods. Want to model this idea. 2. Net and gross demands (a) endowment: ( ω 1 2 ) - what you have before you enter the market. (b) gross demands: ( x 1 ,x 2 ) - what you end up consuming. (c) net demands: ( x 1 - ω 1 ,x 2 - ω 2 ) - what you actually buy (positive) and sell (negative). (d) for economists gross demands are more important; for laypeople net demands are more important. 3. Budget constraint (a) value of what you consume = value of what you sell. (b) p 1 x 1 + p 2 x 2 = p 1 ω 1 + p 2 ω 2 (c) p 1 ( x 1 - ω 1 ) + p 2 ( x 2 - ω 2 ) = 0 (d) budget line depicted in figure 9.1. in the textbook. (Note: endowment is always affordable.) (e) with two goods, the consumer is always a net demander of one good, a net supplier of the other. 4. Comparative statics (a) changing the endowment normal and inferior increasing the value of the endowment makes the consumer better off.
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