01s - INTERMEDIATE MICROECONOMICS Spring 2011 Yan Yuan...

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Spring 2011 Yan Yuan INTERMEDIATE MICROECONOMICS
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Textbook Intermediate Microeconomics: A Modern Approach (7th Edition) by Hal R. Varian 2
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Microeconomics Theory Applications Labor economics Economics of education Development economics Agricultural economics Industrial organizations Health economics …… 3
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Course Outline Consumer theory (1-15) Producer theory (18-27) Market equilibrium (16-17) 4
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Economic Modeling What causes what in economic systems? Which variables are determined outside the model (exogenous) Which variables are to be determined by the model (endogenous) At what level of detail shall we model an economic phenomenon? 6
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Modeling the Apartment Market Central question: How are apartment rents determined? Suppose (simplifying assumptions) apartments are close or distant, but otherwise identical distant apartments rents are exogenous and known many potential renters and landlords, i.e., competitive market 7
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A Normative Question Will the allocation of apartments be desirable? Need to know: Who will rent close apartments? At what price? 8
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Two Principles in Economics Optimization : Each person tries to choose the best alternative available to him or her. Equilibrium : Market price adjusts until quantity demanded equals quantity supplied. 9
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Modeling Individual Demand Discrete commodity: 0 or 1 unit Choose either distant or close apartment Close apartments are more desirable but more expensive Tend to choose close apartment if Distant apartments are also expensive. Higher income. Decide: The maximum rent you are willing to pay for a close apartment. 10
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Demand : Suppose the most any one person is willing to pay to rent a close apartment is $500/month. Then p = $500 Q D = 1. Suppose the price has to drop to $490 before a
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01s - INTERMEDIATE MICROECONOMICS Spring 2011 Yan Yuan...

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