Market modeljuliohuato@gmail.com
Recap Production    and consumption     Descriptive model     Analytical model (PPF) Social       structures (social o...
Markets Premise: private ownership over goods  (“commodities”) Markets for    regular goods (e.g.     oranges, bread, c...
Section goals Forthe section: to learn about how actual markets operate by comparison/contrast with a simple, competitive...
A simple marketA   homogeneous or standard good Many buyers and many sellers Our simple market can be defined as –  peo...
Model-building strategy1.   Split the market into buyers and sellers2.   Study the behavior of buyers a.k.a. demand (KQ:  ...
DemandKQ: What makes buyers buy more/less of agiven good?
DemandKQ: What makes buyers buy more/less of agiven good? Price of the good
DemandKQ: What makes buyers buy more/less of agiven good? Price of the good Income/wealth of buyers
DemandKQ: What makes buyers buy more/less of agiven good? Price of the good Income/wealth of buyers Tastes of buyers
DemandKQ: What makes buyers buy more/less of agiven good? Price of the good Income/wealth of buyers Tastes of buyers P...
DemandKQ: What makes buyers buy more/less of agiven good? Price of the good Income/wealth of buyers Tastes of buyers P...
Demand         Movement along the curve         (the quantity demanded increases)
Demand         Rightward shift of the whole curve         (the demand increases)
SupplyKQ: What makes sellers sell more/less of agiven good?
SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good
SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good Cost of producing the good
SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good Cost of producing the good    Price of inputs
SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good Cost of producing the good    Price of inpu...
SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good Cost of producing the good     Price of inp...
SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good Cost of producing the good     Price of inp...
Supply   Movement along the curve         (the quantity supplied increases)
Supply   Shift of the whole curve         (the supply increases)
Market equilibrium
Market equilibrium
Finding equilibrium
Finding equilibrium
Market equilibrium
Demand shock
Supply shock
Demand & supply schedules     Price      Quantity    Quantity      Glut or    ($/unit)   demanded     supplied     shortag...
Demand & supply schedules
Demand & supply schedules     Price      Quantity    Quantity      Glut or    ($/unit)   demanded     supplied     shortag...
Algebra
Algebra                      (“inverse demand”) Demand   equation                      (usual form)
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Algebra                         (“inverse demand”) Demand    equation                          (usual form)              ...
Summary
Summary We began to study how markets operate by comparison/contrast with a simple abstract model of a “perfectly competi...
Summary We  began to study how markets operate  by comparison/contrast with a simple  abstract model of a “perfectly  com...
Summary We  began to study how markets operate  by comparison/contrast with a simple  abstract model of a “perfectly  com...
Summary We  began to study how markets operate  by comparison/contrast with a simple  abstract model of a “perfectly  com...
Summary   We began to study how markets operate by    comparison/contrast with a simple abstract    model of a “perfectly...
Summary   We began to study how markets operate by    comparison/contrast with a simple abstract model of    a “perfectly...
Summary   We began to study how markets operate by    comparison/contrast with a simple abstract model of a    “perfectly...
Summary   We began to study how markets operate by    comparison/contrast with a simple abstract model of a    “perfectly...
Exercises
Upcoming SlideShare
Loading in …5
×

Market model

1,005 views

Published on

The simple market model described.

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,005
On SlideShare
0
From Embeds
0
Number of Embeds
67
Actions
Shares
0
Downloads
17
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Market model

  1. 1. Market modeljuliohuato@gmail.com
  2. 2. Recap Production and consumption  Descriptive model  Analytical model (PPF) Social structures (social organisms and organizations)  Cooperation and trade  Budget line model Market model is next!
  3. 3. Markets Premise: private ownership over goods (“commodities”) Markets for  regular goods (e.g. oranges, bread, computers, cars, houses) &  productive resources (L, K & NR)
  4. 4. Section goals Forthe section: to learn about how actual markets operate by comparison/contrast with a simple, competitive market under a few idealized conditions
  5. 5. A simple marketA homogeneous or standard good Many buyers and many sellers Our simple market can be defined as – people (buyers and sellers) trading a given good; since there are many buyers & sellers and good is standard, the market is “perfectly competitive” (individuals have no “market power” – i.e. they are “price takers,” not “price setters”)
  6. 6. Model-building strategy1. Split the market into buyers and sellers2. Study the behavior of buyers a.k.a. demand (KQ: What makes the buyers buy more/less of the good?)3. Study the behavior of sellers a.k.a. supply (KQ: What makes the sellers sell more/less of the good?)4. Fit demand & supply together a.k.a. “equilibrium”5. Shock the model in interesting ways (play “what-if”) (KQ: If a given factor affecting demand/supply changes, what happens to “equilibrium”?)6. Use it to deal with practical questions (price ceilings/floors, quotas, taxes, elasticity analysis)
  7. 7. DemandKQ: What makes buyers buy more/less of agiven good?
  8. 8. DemandKQ: What makes buyers buy more/less of agiven good? Price of the good
  9. 9. DemandKQ: What makes buyers buy more/less of agiven good? Price of the good Income/wealth of buyers
  10. 10. DemandKQ: What makes buyers buy more/less of agiven good? Price of the good Income/wealth of buyers Tastes of buyers
  11. 11. DemandKQ: What makes buyers buy more/less of agiven good? Price of the good Income/wealth of buyers Tastes of buyers Prices of other goods
  12. 12. DemandKQ: What makes buyers buy more/less of agiven good? Price of the good Income/wealth of buyers Tastes of buyers Prices of other goods Expectations about the above Etc.
  13. 13. Demand Movement along the curve (the quantity demanded increases)
  14. 14. Demand Rightward shift of the whole curve (the demand increases)
  15. 15. SupplyKQ: What makes sellers sell more/less of agiven good?
  16. 16. SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good
  17. 17. SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good Cost of producing the good
  18. 18. SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good Cost of producing the good  Price of inputs
  19. 19. SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good Cost of producing the good  Price of inputs  Technology
  20. 20. SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good Cost of producing the good  Price of inputs  Technology Prices of other goods
  21. 21. SupplyKQ: What makes buyers buy more/less of agiven good? Price of the good Cost of producing the good  Price of inputs  Technology Prices of other goods Expectations about the above Etc.
  22. 22. Supply Movement along the curve (the quantity supplied increases)
  23. 23. Supply Shift of the whole curve (the supply increases)
  24. 24. Market equilibrium
  25. 25. Market equilibrium
  26. 26. Finding equilibrium
  27. 27. Finding equilibrium
  28. 28. Market equilibrium
  29. 29. Demand shock
  30. 30. Supply shock
  31. 31. Demand & supply schedules Price Quantity Quantity Glut or ($/unit) demanded supplied shortage (units) (units)A 10 100 400 300B 9 150 350 200C 8 200 300 100D 7 250 250 0E 6 300 200 100F 5 350 150 200D 4 400 100 300
  32. 32. Demand & supply schedules
  33. 33. Demand & supply schedules Price Quantity Quantity Glut or ($/unit) demanded supplied shortage (units) (units)A 10 100 400 300B 9 150 350 200C 8 200 300 100D 7 250 250 0E 6 300 200 100F 5 350 150 200D 4 400 100 300
  34. 34. Algebra
  35. 35. Algebra (“inverse demand”) Demand equation (usual form)
  36. 36. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form)
  37. 37. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form) Equilibrium
  38. 38. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form) Equilibrium
  39. 39. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form) Equilibrium
  40. 40. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form) Equilibrium
  41. 41. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form) Equilibrium
  42. 42. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form) Equilibrium
  43. 43. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form) Equilibrium
  44. 44. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form) Equilibrium
  45. 45. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form) Equilibrium
  46. 46. Algebra (“inverse demand”) Demand equation (usual form) (“inverse supply”) Supply equation (usual form) Equilibrium
  47. 47. Summary
  48. 48. Summary We began to study how markets operate by comparison/contrast with a simple abstract model of a “perfectly competitive”
  49. 49. Summary We began to study how markets operate by comparison/contrast with a simple abstract model of a “perfectly competitive” We emphasized its simplicity, its abstract and mechanical character
  50. 50. Summary We began to study how markets operate by comparison/contrast with a simple abstract model of a “perfectly competitive” We emphasized its simplicity, its abstract and mechanical character We fitted the topic in the context of our course’s goals
  51. 51. Summary We began to study how markets operate by comparison/contrast with a simple abstract model of a “perfectly competitive” We emphasized its simplicity, its abstract and mechanical character We fitted the topic in the context of our course’s goals We laid out a strategy to build the model
  52. 52. Summary We began to study how markets operate by comparison/contrast with a simple abstract model of a “perfectly competitive” We emphasized its simplicity, its abstract and mechanical character We fitted the topic in the context of our course’s goals We laid out a strategy to build the model We looked at the demand and supply sides separately
  53. 53. Summary We began to study how markets operate by comparison/contrast with a simple abstract model of a “perfectly competitive” We emphasized its simplicity, its abstract and mechanical character We fitted the topic in the context of our course’s goals We laid out a strategy to build the model We looked at the demand and supply sides separately We looked at how equilibrium is determined and how demand or supply shocks create disequilibrium
  54. 54. Summary We began to study how markets operate by comparison/contrast with a simple abstract model of a “perfectly competitive” We emphasized its simplicity, its abstract and mechanical character We fitted the topic in the context of our course’s goals We laid out a strategy to build the model We looked at the demand and supply sides separately We looked at how equilibrium is determined and how demand or supply shocks create disequilibrium We used graphical and tabular analysis, and then algebra
  55. 55. Summary We began to study how markets operate by comparison/contrast with a simple abstract model of a “perfectly competitive” We emphasized its simplicity, its abstract and mechanical character We fitted the topic in the context of our course’s goals We laid out a strategy to build the model We looked at the demand and supply sides We looked at how equilibrium is determined and how demand or supply shocks create disequilibrium We used graphical and tabular analysis, and then algebra Next, we’ll use the simple model in applications and extend it
  56. 56. Exercises

×