Chapter1
The Market
This chapter was written so I would have something to talk about on thefirst day of class.I wanted to give students an idea of what economics was all about, and what my lectures would be like,and yet not have anything that was really critical for the cour.(At Michigan,students are still shopping around on the first day,and a good number of them won’t necessarily be at the lecture.)
I cho to discuss a housing market since it gives a way to describe a number of economic ideas in very simple language and gives a good guide to what lies ahead.In this chapter I was deliberately looking for surprising results—analytic insights that wouldn’t ari from“just thinking”about a problem.The two most surprising results that I prented are the condominium example and the tax example in Section1.6.It is worth emphasizing in class just why the results are true,and how they illustrate the power of economic modeling.
It also makes n to describe their limitations.Suppo that every con-dominium conversion involved knocking out the walls and creating two apart-ments.Then what would happen to the price of apartments?Suppo that the condominiums attracted suburbanites who wouldn’t otherwi consider r
enting an apartment.In each of the cas,the price of remaining apartments would ri when condominium conversion took place.
The point of a simple economic model of the sort considered here is to focus our thoughts on what the relevant effects are,not to come to a once-and-for-all conclusion about the urban housing market.The real insight that is offered by the examples is that you have to consider both the supply and the demand side of the apartment market when you analyze the impact of this particular policy.
The only concept that the students em to have trouble with in this chapter is the idea of Pareto efficiency.I usually talk about the idea a little more than is in the book and rephra it a few times.But then I tell them not to worry about it too much,since we’ll look at it in great detail later in the cour.
The workbook problems here are pretty straightforward.The biggest problem is getting the students to draw the true(discontinuous)demand curve,as in Figure1.1,rather than just to sketch in a downward-sloping curve as in Figure 1.2.This is a good time to emphasize to the students that when they are given numbers describing a curve,they have to u the numbers—they can’t just sketch in any old shape.
The Market
A.Example of an economic model—the market for apartments
三途河畔
2.for example,assume all apartments are identical
3.some are clo to the university,others are far away
4.price of outer-ring apartments is exogenous—determined outside the
model
5.price of inner-ring apartments is endogenous—determined within the
model
B.Two principles of economics
1.optimization principle—people choo actions that are in their interest
2.equilibrium principle—people’s actions must eventually be consistent
with each other
C.Constructing the demand curve
1.line up the people by willingness-to-pay.See Figure1.1.
2.for large numbers of people,this is esntially a smooth curve as in Figure
1.2.
珍珠耳饰D.Supply curve
1.depends on time frame
2.but we’ll look at the short run—when supply of apartments isfixed.
E.Equilibrium
1.when demand equals supply
2.price that clears the market
F.Comparative statics
1.how does equilibrium adjust when economic conditions change?
幼儿园小班学期计划2.“comparative”—compare two equilibria
3.“statics”—only look at equilibria,not at adjustment
5.
price;e Figure1.6.
G.Other ways to allocate apartments
半天云1.discriminating monopolist
< control
H.Comparing different institutions
are.
2.an allocation is Pareto efficient if there is no way to make some group
of people better offwithout making someone el wor off.
3.if something is not Pareto efficient,then there is some way to make some
people better offwithout making someone el wor off.
4.if something is not Pareto efficient,then there is some kind of“waste”in
the system.
I.Checking efficiency of different methods
1.free market—efficient
2.discriminating monopolist—efficient
< control—not efficient
J.Equilibrium in long run
1.supply will change
2.can examine efficiency in this context as well
Chapter2
Budget Constraint Most of the material here is pretty straightforward.Drive home the formula for the slope of the budget line,emphasizing the derivation on page23.Try some different notation to make sure that they e the idea of the budget line, and don’t just memorize the formulas.In the workbook,
打架英文we u a number of different choices of notation for precily this reason.It is also worth pointing out that the slope of a line depends on the(arbitrary)choice of which variable is plotted on the vertical axis.It is surprising how often confusion aris on this point.
Students sometimes have problems with the idea of a numeraire good.They understand the algebra,but they don’t understand when it would be ud.One nice example is in foreign currency exchange.If you have English pounds and American dollars,then you can measure the total wealth that you have in either dollars or pounds by choosing one or the other of the two goods as numeraire.
In the workbook,students sometimes get thrown in exercis where one of the goods has a negative price,so the budget line has a positive slope.This comes from trying to memorize formulas andfigures rather than thinking about the problem.This is a good exerci to go over in order to warn students about the dangers of rote learning!
Budget Constraint
A.Consumer theory:consumers choo the best bundles of goods they can
afford.
假如给我三天光明好句
1.this is virtually the entire theory in a nutshell
2.but this theory has many surprising conquences
B.Two parts to theory
1.“can afford”—budget constraint
2.“best”—according to consumers’preferences
C.What do we want to do with the theory?
2.predict how behavior changes as economic environment changes
3.u obrved behavior to estimate underlying values
a)cost-benefit analysis
b)predicting impact of some policy
D.Consumption bundle
1.(x1,x2)—how much of each good is consumed
2.(p1,p2)—prices of the two goods
3.m—money the consumer has to spend
4.budget constraint:p1x1+p2x2≤m
5.all(x1,x2)that satisfy this constraint make up the budget t of the
consumer.See Figure2.1.
E.Two goods
1.theory works with more than two goods,but can’t draw pictures.
2.often think of good2(say)as a composite good,reprenting money to
spend on other goods.
3.budget constraint becomes p1x1+x2≤m.
< spent on good1(p1x1)plus the money spent on good2(x2)has
土窖to be less than or equal to the amount available(m).
F.Budget line
1.p1x1+p2x2=m
2.also written as x2=m/p2−(p1/p2)x1.
3.budget line has slope of−p1/p2and vertical intercept of m/p2.
4.t x1=0tofind vertical intercept(m/p2);t x2=0tofind horizontal
intercept(m/p1).
5.slope of budget line measures opportunity cost of good1—how much of
good2you must give up in order to consume more of good1.
G.Changes in budget line
1.increasing m makes parallel shift out.See Figure
2.2.
2.increasing p1makes budget line steeper.See Figure2.
3.
3.increasing p2makes budget lineflatter
4.just e how intercepts change
5.multiplying all prices by t is just like dividing income by t
6.multiplying all prices and income by t doesn’t change budget line
a)“a perfectly balanced inflation doesn’t change consumption possibili-
ties”
H.The numeraire
1.can arbitrarily assign one price a value of1and measure other price relative
to that
2.uful when measuring relative ,English pounds per dollar,1987
dollars versus1974dollars,etc.
I.Taxes,subsidies,and rationing
1.quantity tax—tax levied on units bought:p1+t
2.value tax—tax levied on dollars spent:p1+τp1.Also known as ad
valorem tax
3.subsidies—opposite of a tax
a)p1−s
市场分析方法
b)(1−σ)p1
