Documente Academic
Documente Profesional
Documente Cultură
Contents
1. Introduction
2. Types of Markets
3. Basic Principles and Concepts
4. Demand Elasticities
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1. Introduction
Economics is the study of production, distribution, and consumption; it is
divided into two broad areas: Microeconomics and Macroeconomics
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2. Types of Markets
Factor markets refers to the markets for factors of production
Natural resources, mineral wealth, raw materials, labor
Firms are buyers
Goods markets refers to the markets for consumer goods and services
Firms are the sellers
Intermediate markets are where one firms outputs are another firms inputs
Capital markets refers to the markets for long term financial capital
Borrow money by selling debt instruments
Sell claims to ownership by selling equity instruments
Capital markets also include the secondary markets where debt and equity claims are
subsequently traded
Example 1
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QD = 100 0.5P
Inverse demand function
P = 200 2Q
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A change in any other variable will shift the demand curve (change in demand)
Shift is both vertical and horizontal; what is the interpretation?
Changes (or shifts) in demand can be caused by changes in:
Income
Price of substitutes
Price of complements
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Example 2
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Q = -300 + 4P 10W
Say W = 10, Q = -400 + 4P
Inverse supply function:
P = Q/4 + 100
Supply curve
Q
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Q
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Example 3
Example 5
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Q
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Partial equilibrium analysis: concentrate on one market, taking values of exogenous variables as given
General equilibrium analysis: consider all variables and how they interact
Example 6
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D
S
Excess Supply
Excess Demand
Q
Example 7
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Example 2: Treasury announces it will auction six-month T-bills with face value 100 million. Noncompetitive bids: 10 million. What is the winning price given the following competitive bids? What
percentage of the order will be filled for each bidder. Assume a single price auction.
Discount Price per Amount
rate bid 100
(millions)
2.0%
99.00
40
2.2%
98.90
30
2.4%
98.80
30
2.8%
98.60
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Example 8
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D
Example 9
Q1
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Q
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P1
Example 10
Q1
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Price Ceiling
P
P
Deadweight loss
Deadweight loss
P*
P*
D
Q
Example 11
Q*
D
Q
Q*
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Q
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4. Demand Elasticities
Demand elasticity quantifies how sensitive quantity demanded is to changes in the
independent variables:
1.
2.
3.
4.
Own-Price
Income
Price of Substitute
Price of Complement
Basic formula:
% change in quantity demanded
% change in variable
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Example 13
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Summary
Types of Markets
Demand
Supply
Aggregating
Consumer and Producer Surplus
Market Interference
Own Price Elasticity
Income Elasticity
Cross Elasticity
Calculating Elasticity
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Conclusion
Read summary
Review learning objectives
Examples
Practice problems
Practice questions from other sources
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