Micro review

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Review of the simple market model for government finance students.

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Micro review

  1. 1. Micro review:The simple market model<br />juliohuato@gmail.com<br />
  2. 2. Micro review<br />A simple market model<br />Demand<br />Supply<br />Equilibrium<br />Shifts in demand or supply<br />Algebra and graphs<br />
  3. 3. Demand<br />What makes buyers buy (consumers consume) more of a good?<br />A lower price of the good<br />Higher income or wealth<br />Enhanced taste for the good<br />Suitable changes in prices of related goods<br />Expectations<br />Etc.<br />
  4. 4. Demand graph<br />
  5. 5. Demand equation<br />where 40 is the (only in this case, because the axes of this graph<br />are flipped) horizontal intercept and -2 is the slope.<br />NOTE: The intercept tells you the quantity demanded when <br />the good is free. That is, when p=0, Qd = 40. In most cases, this <br />is not of much interest. The slope (-2) tells you the change in <br />the quantity demanded when the price changes in one unit <br />($1/unit). That is, when Dp = 1, DQd = -2. <br />
  6. 6. Supply<br />What makes sellers sell (producers produce) more of a good?<br />A higher price of the good<br />Lower input prices (e.g. wages)<br />Improved technology<br />Expectations<br />Etc.<br />
  7. 7. Supply graph<br />
  8. 8. Supply equation<br />where 10 is the (again, only in this case) horizontal intercept and 4 is the slope.<br />What do the intercept and slope tell you?<br />
  9. 9. Equilibrium graph<br />
  10. 10. Solving the system<br />
  11. 11. Solving the system<br />
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