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The_Two-Market_Model - The Two-Market Model Interpreting...

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The Two-Market Model Interpreting the Price Difference
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Partial Equilibrium Analysis Look at one market at a time Allocation of resources Exogenous change Demand shift Supply shift Price control Tax or subsidy International trade Trade barriers New equilibrium
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General Equilibrium Analysis All markets are interconnected Hallmark of macroeconomics Both approaches are important Here we look at two markets that are connected Generalizations
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The Two Market Model
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Compensating Differentials Jobs have different characteristics Hours per week Fringe benefits Human capital Location Workers have choices Trade-off: high wages or desirable characteristics Equilibrium wage difference is market value of characteristic
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Trucking Long haul Local delivery
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Hedonic Pricing Goods and services have different characteristics Quality Size Service Buyers have choices Trade-off: low prices or desirable characteristics Equilibrium price difference is market value of characteristic
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Where to Buy a House Lower quality schools Higher quality schools
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