ch1 and 2_Econ 281_Fall_20100

ch1 and 2_Econ 281_Fall_20100 - Outline Ch 1&2 1. 2. 3. 4....

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Copyrights @ Valentina Galvani 2008. All rights 1. Microeconomics 2. Competitive Markets 3. The Market Demand Curve 4. The Market Supply Curve 5. Equilibrium 6. Comparative Statics and Demand and Supply curves 7. Elasticities 8. Back of the Envelope Techniques Outline Ch 1&2
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Copyrights @ Valentina Galvani 2008. All rights DEFINITION Microeconomics Microeconomics : The study of the choices that individuals and businesses make, the way these choices interact, and the influence that governments exert on these choices. Macroeconomics Macroeconomics : The study of the aggregate (or total) effects on the national economy and the global economy of the choices that individuals, businesses, and governments make.
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Copyrights @ Valentina Galvani 2008. All rights What is a market? In this course we typically assume that the markets are unregulated (the government does not meddle directly with supply or/and demand, but can impose standards and levy taxes) Note: In Canada (and in U.S. and in Europe) this is not the case for at least the market for agricultural commodities. What is a consumption good? An abstraction! Basics
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Copyrights @ Valentina Galvani 2008. All rights Two fundamental Market Ingredients 1. Market Demand 1. Market Supply
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Copyrights @ Valentina Galvani 2008. All rights The market demand (function) tells us HOW the quantity of a good demanded by the  sum of all consumers in the market depends on various factors. Qd = Q (p, rent ,Income, …) Market Demand Example: think of the demand for single family houses in Edmonton. Then Qd =Q (P, population, Average Income, Interest Rate, Rents, Utilies, Property Tax, Price of Apartments, Expectations, …)
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Copyrights @ Valentina Galvani 2008. All rights Demand Curve The demand is often described holding constant demand drivers other than the price of the good. Qd = Q (P) The DEMAND CURVE plots the expression Qd =Q(P) (on a graph with the PRICE on the vertical axis)
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Copyrights @ Valentina Galvani 2008. All rights Note: We  always  graph  P  on  vertical  axis  and  Q  on  horizontal  axis,  but  we  write  demand as Q as a function of P If P is written as function of Q, it is called the inverse demand. Normal Form: Qd =  100-2P             Inverse form:   P =  50 – Qd / 2 To be precise, the demand curve is the plot of the INVERSE Demand
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Copyrights @ Valentina Galvani 2008. All rights Qd = a – b p  a, b are positive numbers p is price Is called LINEAR because has the equation of a line  -b is the slope of the demand   a/b is called choke price (the price for which Qd=0 Note: Inverse linear demand: P= a/ b Q/b Linear Demand
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Copyrights @ Valentina Galvani 2008. All rights Price in units of wealth 0 Quantity units Inverse demand: P= 50 0.5Q Slope=-0.5 Demand Qd = 100-2P a= 100, b=2 Slope=-2
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Galvani 2008. All rights Price Demand curve (linear)
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This note was uploaded on 10/04/2011 for the course ECON 281 taught by Professor Marchand during the Spring '10 term at University of Alberta.

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ch1 and 2_Econ 281_Fall_20100 - Outline Ch 1&2 1. 2. 3. 4....

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