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Review of the simple market model for government finance students.

Review of the simple market model for government finance students.

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    Micro review Micro review Presentation Transcript

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