1. The document discusses three models of aggregate supply: the sticky-wage model, imperfect-information model, and sticky-price model. All three models imply that output rises above its natural rate when the price level falls below the expected price level.
2. It derives the Phillips curve from the short-run aggregate supply curve, stating that inflation depends on expected inflation, cyclical unemployment, and supply shocks, presenting a short-run tradeoff between inflation and unemployment.
3. Expectations of inflation can be formed through adaptive expectations based on recent inflation or rational expectations based on all available information.
The document describes demand and supply functions in economics. It states that demand functions show the quantity (q) consumers are willing to buy of a product at a given price (p). Supply functions show the quantity producers are willing to supply at a given price. It provides the linear equations for demand and supply and explains their interpretations. Equilibrium occurs where quantity demanded equals quantity supplied at the same price. The document also discusses cost functions, revenue functions, and profit functions. It applies these concepts to analyze a case study on a mobile phone business.
This document contains review questions about perfect competition. It includes questions about profit maximization for a perfectly competitive firm given cost and revenue information. It asks the student to determine the optimal output level and profits for a small tomato grower facing different market prices. It also contains questions about break-even points, short-run supply curves, and long-run equilibrium for a perfectly competitive industry. The student is asked to apply concepts of marginal cost, average cost, and profit maximization to firms operating under perfect competition.
The document discusses linear functions and their application to cost, revenue, and profit functions. It defines a linear function as having the form f(x) = ax + b, where a and b are constants.
It explains that a linear cost function is the total variable cost plus total fixed cost. A linear revenue function is price multiplied by quantity sold. Profit is defined as total revenue minus total cost.
The break even point occurs when total revenue equals total cost. An example is provided to demonstrate calculating the break even point for a company by setting the linear revenue and cost functions equal to each other and solving for the quantity of units that must be sold.
The document discusses demand and supply functions, equilibrium price and quantity, price floors and ceilings, elasticity, costs and profits for firms under different market structures. Key points include:
- Equilibrium price and quantity are where supply equals demand. Price floors create surpluses while price ceilings create shortages.
- Demand for good X is inelastic with respect to own price but elastic with respect to the price of a substitute good Y. Good X is an inferior good.
- Maximum profits for a firm occur when marginal revenue equals marginal cost and this determines optimal use of variable inputs.
- Under different market structures, above-normal profits will be eliminated in the long-run through entry of new competitors
This document discusses break even analysis for a company. It defines break even point as when total revenue equals total cost. It provides formulas for linear cost, revenue, and profit functions. As an example, it calculates that a company making calculators must sell 20,000 units to break even based on a unit variable cost of Rs.225, fixed cost of Rs.25,00,000, and selling price of Rs.350 per unit. It concludes that selling more than 20,000 units would result in profit while less would result in a loss. It also provides a practice problem to determine the break even point for a product sold at Rs.450 per unit with variable cost of Rs.330 and fixed cost of Rs.
Agri 2312 chapter 6 introduction to production and resource useRita Conley
This document provides an introduction to production and resource use. It discusses key concepts including the conditions of perfect competition, classification of inputs, production relationships, and assessing costs. Specifically, it defines inputs as labor, capital, land, and management. It introduces the total physical product curve and shows the three stages of production. It also discusses the relationships between marginal physical product, average physical product, and marginal cost. Optimal output and input levels are where marginal revenue/value equals marginal cost/input cost.
1) The profit function relates maximized profit to input and output prices and other variables, and contains all information about the underlying production function.
2) Deriving the profit function involves maximizing profit given a production function and input and output prices to obtain input demand and output supply functions.
3) Hotelling's lemma establishes that the supply function can be derived from the profit function by taking the partial derivative of profit with respect to output price. This allows input demand and output supply to be derived from the profit function.
A carmaker adopted postponement to reduce mismatch between supply and demand. Originally, mismatch was 3000 units but with postponement it reduced to 1200 units, a 60% decrease. Without postponement, production was 3000 units while demand was 6000 units. With postponement, production became 2500 units and demand was 4000 units, reducing the mismatch.
The document describes demand and supply functions in economics. It states that demand functions show the quantity (q) consumers are willing to buy of a product at a given price (p). Supply functions show the quantity producers are willing to supply at a given price. It provides the linear equations for demand and supply and explains their interpretations. Equilibrium occurs where quantity demanded equals quantity supplied at the same price. The document also discusses cost functions, revenue functions, and profit functions. It applies these concepts to analyze a case study on a mobile phone business.
This document contains review questions about perfect competition. It includes questions about profit maximization for a perfectly competitive firm given cost and revenue information. It asks the student to determine the optimal output level and profits for a small tomato grower facing different market prices. It also contains questions about break-even points, short-run supply curves, and long-run equilibrium for a perfectly competitive industry. The student is asked to apply concepts of marginal cost, average cost, and profit maximization to firms operating under perfect competition.
The document discusses linear functions and their application to cost, revenue, and profit functions. It defines a linear function as having the form f(x) = ax + b, where a and b are constants.
It explains that a linear cost function is the total variable cost plus total fixed cost. A linear revenue function is price multiplied by quantity sold. Profit is defined as total revenue minus total cost.
The break even point occurs when total revenue equals total cost. An example is provided to demonstrate calculating the break even point for a company by setting the linear revenue and cost functions equal to each other and solving for the quantity of units that must be sold.
The document discusses demand and supply functions, equilibrium price and quantity, price floors and ceilings, elasticity, costs and profits for firms under different market structures. Key points include:
- Equilibrium price and quantity are where supply equals demand. Price floors create surpluses while price ceilings create shortages.
- Demand for good X is inelastic with respect to own price but elastic with respect to the price of a substitute good Y. Good X is an inferior good.
- Maximum profits for a firm occur when marginal revenue equals marginal cost and this determines optimal use of variable inputs.
- Under different market structures, above-normal profits will be eliminated in the long-run through entry of new competitors
This document discusses break even analysis for a company. It defines break even point as when total revenue equals total cost. It provides formulas for linear cost, revenue, and profit functions. As an example, it calculates that a company making calculators must sell 20,000 units to break even based on a unit variable cost of Rs.225, fixed cost of Rs.25,00,000, and selling price of Rs.350 per unit. It concludes that selling more than 20,000 units would result in profit while less would result in a loss. It also provides a practice problem to determine the break even point for a product sold at Rs.450 per unit with variable cost of Rs.330 and fixed cost of Rs.
Agri 2312 chapter 6 introduction to production and resource useRita Conley
This document provides an introduction to production and resource use. It discusses key concepts including the conditions of perfect competition, classification of inputs, production relationships, and assessing costs. Specifically, it defines inputs as labor, capital, land, and management. It introduces the total physical product curve and shows the three stages of production. It also discusses the relationships between marginal physical product, average physical product, and marginal cost. Optimal output and input levels are where marginal revenue/value equals marginal cost/input cost.
1) The profit function relates maximized profit to input and output prices and other variables, and contains all information about the underlying production function.
2) Deriving the profit function involves maximizing profit given a production function and input and output prices to obtain input demand and output supply functions.
3) Hotelling's lemma establishes that the supply function can be derived from the profit function by taking the partial derivative of profit with respect to output price. This allows input demand and output supply to be derived from the profit function.
A carmaker adopted postponement to reduce mismatch between supply and demand. Originally, mismatch was 3000 units but with postponement it reduced to 1200 units, a 60% decrease. Without postponement, production was 3000 units while demand was 6000 units. With postponement, production became 2500 units and demand was 4000 units, reducing the mismatch.
This document provides an overview of aggregate supply and the short-run tradeoff between inflation and unemployment known as the Phillips curve. It discusses three models of aggregate supply - the sticky-wage model, imperfect-information model, and sticky-price model - and how they each imply a positive relationship between output and the price level in the short run. The Phillips curve relationship is then derived from the aggregate supply relationship. The document also discusses concepts like adaptive expectations, inflation inertia, cost-push vs demand-pull inflation, and the sacrifice ratio.
This document provides an overview of Chapter 13 from a macroeconomics textbook. It discusses three models of aggregate supply: the sticky-wage model, imperfect-information model, and sticky-price model. All three models imply a short-run tradeoff between inflation and unemployment known as the Phillips curve. The chapter also examines how the Phillips curve can shift due to changes in expected inflation and how disinflation policies require sacrificing output to reduce unemployment below the natural rate. Rational expectations theory suggests credible disinflation may require little output sacrifice.
This document provides an overview of key concepts from a chapter on aggregate supply and the short-run tradeoff between inflation and unemployment. It discusses three models of aggregate supply (sticky-wage, imperfect-information, sticky-price) that imply a positive relationship between output and the price level in the short run. It also covers the Phillips curve relationship between inflation and unemployment and how aggregate supply shifts over time as expectations change.
A Nash Equilibrium Game and Pareto Efficient Solution to A Cooperative Advert...iosrjce
We consider a manufacturer retailer channel co ordination in a scenario where the demand is
dependent on the price and the advertising expenditures by the manufacturer and the retailer, the channel
members. We extend a previous model developed by the authors to a non cooperative simultaneous move nash
game frame work. We also derive pareto efficient schemes in case of a cooperative problem.
Profit maximization and perfect competitionjaveria gul
1) A firm produces at the quantity where marginal revenue equals marginal cost to maximize profits. This is the point where additional revenue from producing another unit equals the additional costs.
2) A firm's profit is maximized by producing at the output level where marginal revenue equals marginal cost. Producing more would mean marginal costs exceed marginal revenues, reducing profits.
3) In the short run, a competitive firm will produce the quantity where marginal revenue equals marginal cost to maximize profits. The firm's profit is represented by the rectangle between average total cost and marginal cost at the profit-maximizing quantity.
This document discusses short-run aggregate supply (SRAS) and how it differs from long-run aggregate supply (LRAS). It introduces three models that can explain the upward slope of the SRAS curve: the sticky-wage model, imperfect-information model, and sticky-price model. Each model results in the same short-run aggregate supply equation, where output deviates from potential when the price level differs from expected inflation. The document also discusses how the SRAS curve relates to the Phillips curve and how both represent the short-run tradeoff between inflation and unemployment.
This document discusses short-run aggregate supply (SRAS) and how it differs from long-run aggregate supply (LRAS). It introduces three models that can explain the upward slope of the SRAS curve: the sticky-wage model, imperfect-information model, and sticky-price model. Each model results in the same short-run aggregate supply equation, where output deviates from potential when the price level differs from expected inflation. The document also discusses how the SRAS curve relates to the Phillips curve and how both represent the short-run tradeoff between inflation and unemployment.
Perfect competition requires firms be price takers, products be homogeneous, and there be free entry and exit in the market. A competitive firm maximizes profits by producing at the quantity where marginal revenue equals marginal cost. In long-run equilibrium, competitive firms earn zero economic profits as entry and exit of firms causes the market supply curve to shift until it is tangent to the average cost curve. Consumer and producer surplus are measures of welfare in a competitive market. Import quotas and tariffs reduce welfare by creating deadweight loss. Taxes can impact buyers and sellers depending on price elasticities of supply and demand. Anti-trust laws aim to promote competition by preventing collusion and artificial restrictions on output.
This document discusses monopoly and natural monopoly. It defines a monopoly as a single supplier of a product in a market. Unlike perfect competition, a monopolist faces a downward sloping demand curve. The marginal revenue curve for a monopolist is downward sloping and has the same y-intercept and twice the slope of the demand curve. A monopolist produces where marginal revenue equals marginal cost and charges the price on the demand curve. This leads to monopoly profits, consumer surplus, and deadweight loss. A natural monopoly exists when economies of scale lead to declining average total costs over the relevant output range, making it most efficient for a single firm to produce the entire output. Natural monopolies are often regulated by governments setting price limits like average
Agri 2312 chapter 7 economics of input and product substitutionRita Conley
This chapter discusses concepts related to production including isoquants, iso-cost lines, and production possibilities frontiers. It examines finding the least-cost combination of inputs and the profit-maximizing combination of outputs. A change in input or output prices will shift the iso-cost line or iso-revenue line and alter the optimal production levels. The key concepts are that production is most efficient where the marginal rate of technical substitution equals the input price ratio and profits are maximized where the marginal rate of product transformation equals the output price ratio.
Case Study 3 Production Cost Perfect Comp Answer Sheet - newKayla Davenport
This document provides a case study with instructions to analyze production, costs, and market equilibrium under perfect competition across the short run and long run. Key results include:
- In the short run, the market equilibrium price is $735.29 and quantity is 29.42. Individual firms earn positive profits.
- In the long run, entry and exit of firms will occur until the number adjusts so that price equals minimum average total cost for firms. Profits are driven to zero.
- Graphs are used to illustrate the short run and long run equilibrium outcomes for individual firms and the overall market.
Effect of isoelastic form of price dependent demand in cooperative advertisingiosrjce
This is an extension of the co-operative advertising model developed earlier by the authors. We
develop a manufacturer-retailer channel co ordination where the demand is modeled as a multiplicative effect
of price and an additive sales response function. We change the form of demand here as an extension to earlier
model developed by the authors .We use isoelastic form of the price dependent demand instead of the linear
form to observe changes in the model if any. We develop both sequential and simultaneous moves non cooperative
game structures where both retailer and manufacturer act simultaneously and independently and
compare them through propositions. Finally we develop a cooperative model and discuss the optimality of
pareto efficient scheme.
This document discusses profit maximization by firms. It explains that a firm's profit is its revenue minus its costs. Revenue is determined by price and quantity sold, while costs depend on quantity produced. To maximize profit, a firm balances the marginal benefit of additional sales (marginal revenue) against the marginal cost of production. The profit-maximizing quantity occurs where marginal revenue equals marginal cost. The document provides an example and discusses the differences between price-setting firms with downward-sloping demand curves and price-taking firms that face a horizontal demand curve.
Testing for the 'January Effect' under the CAPM frameworkLov Loothra
In this project, we used the Capital Assets Pricing Model (CAPM) to test for the ‘January effect’ - a calendar‐related market anomaly in the financial market where financial security prices increase in the month of January.
Please refer to "Chapter 2 – The Capital Asset Pricing Model: An Application of Bivariate Regression Analysis" of the book "The Practice of Econometrics" by Ernst R. Bernd for the test data, background and problem statement.
The document provides examples of algorithms and asks the reader to complete tasks related to algorithms including:
1) Stating 3 examples of algorithms used in real life, writing 1 algorithm from the examples, and writing algorithms for preparing instant noodles and using a vending machine.
2) Converting a pseudo code algorithm to a flowchart and a flowchart to pseudo code.
3) Determining the inputs and outputs for algorithms that find the circumference of a circle, perform math operations on two numbers, calculate the cost of apples, and determine if a number is odd or even and calculate averages.
This document provides an overview of aggregate supply and the short-run tradeoff between inflation and unemployment known as the Phillips curve. It discusses three models of aggregate supply - the sticky-wage model, imperfect-information model, and sticky-price model - and how they each imply a positive relationship between output and the price level in the short run. The Phillips curve relationship is then derived from the aggregate supply relationship. The document also discusses concepts like adaptive expectations, inflation inertia, cost-push vs demand-pull inflation, and the sacrifice ratio.
This document provides an overview of Chapter 13 from a macroeconomics textbook. It discusses three models of aggregate supply: the sticky-wage model, imperfect-information model, and sticky-price model. All three models imply a short-run tradeoff between inflation and unemployment known as the Phillips curve. The chapter also examines how the Phillips curve can shift due to changes in expected inflation and how disinflation policies require sacrificing output to reduce unemployment below the natural rate. Rational expectations theory suggests credible disinflation may require little output sacrifice.
This document provides an overview of key concepts from a chapter on aggregate supply and the short-run tradeoff between inflation and unemployment. It discusses three models of aggregate supply (sticky-wage, imperfect-information, sticky-price) that imply a positive relationship between output and the price level in the short run. It also covers the Phillips curve relationship between inflation and unemployment and how aggregate supply shifts over time as expectations change.
A Nash Equilibrium Game and Pareto Efficient Solution to A Cooperative Advert...iosrjce
We consider a manufacturer retailer channel co ordination in a scenario where the demand is
dependent on the price and the advertising expenditures by the manufacturer and the retailer, the channel
members. We extend a previous model developed by the authors to a non cooperative simultaneous move nash
game frame work. We also derive pareto efficient schemes in case of a cooperative problem.
Profit maximization and perfect competitionjaveria gul
1) A firm produces at the quantity where marginal revenue equals marginal cost to maximize profits. This is the point where additional revenue from producing another unit equals the additional costs.
2) A firm's profit is maximized by producing at the output level where marginal revenue equals marginal cost. Producing more would mean marginal costs exceed marginal revenues, reducing profits.
3) In the short run, a competitive firm will produce the quantity where marginal revenue equals marginal cost to maximize profits. The firm's profit is represented by the rectangle between average total cost and marginal cost at the profit-maximizing quantity.
This document discusses short-run aggregate supply (SRAS) and how it differs from long-run aggregate supply (LRAS). It introduces three models that can explain the upward slope of the SRAS curve: the sticky-wage model, imperfect-information model, and sticky-price model. Each model results in the same short-run aggregate supply equation, where output deviates from potential when the price level differs from expected inflation. The document also discusses how the SRAS curve relates to the Phillips curve and how both represent the short-run tradeoff between inflation and unemployment.
This document discusses short-run aggregate supply (SRAS) and how it differs from long-run aggregate supply (LRAS). It introduces three models that can explain the upward slope of the SRAS curve: the sticky-wage model, imperfect-information model, and sticky-price model. Each model results in the same short-run aggregate supply equation, where output deviates from potential when the price level differs from expected inflation. The document also discusses how the SRAS curve relates to the Phillips curve and how both represent the short-run tradeoff between inflation and unemployment.
Perfect competition requires firms be price takers, products be homogeneous, and there be free entry and exit in the market. A competitive firm maximizes profits by producing at the quantity where marginal revenue equals marginal cost. In long-run equilibrium, competitive firms earn zero economic profits as entry and exit of firms causes the market supply curve to shift until it is tangent to the average cost curve. Consumer and producer surplus are measures of welfare in a competitive market. Import quotas and tariffs reduce welfare by creating deadweight loss. Taxes can impact buyers and sellers depending on price elasticities of supply and demand. Anti-trust laws aim to promote competition by preventing collusion and artificial restrictions on output.
This document discusses monopoly and natural monopoly. It defines a monopoly as a single supplier of a product in a market. Unlike perfect competition, a monopolist faces a downward sloping demand curve. The marginal revenue curve for a monopolist is downward sloping and has the same y-intercept and twice the slope of the demand curve. A monopolist produces where marginal revenue equals marginal cost and charges the price on the demand curve. This leads to monopoly profits, consumer surplus, and deadweight loss. A natural monopoly exists when economies of scale lead to declining average total costs over the relevant output range, making it most efficient for a single firm to produce the entire output. Natural monopolies are often regulated by governments setting price limits like average
Agri 2312 chapter 7 economics of input and product substitutionRita Conley
This chapter discusses concepts related to production including isoquants, iso-cost lines, and production possibilities frontiers. It examines finding the least-cost combination of inputs and the profit-maximizing combination of outputs. A change in input or output prices will shift the iso-cost line or iso-revenue line and alter the optimal production levels. The key concepts are that production is most efficient where the marginal rate of technical substitution equals the input price ratio and profits are maximized where the marginal rate of product transformation equals the output price ratio.
Case Study 3 Production Cost Perfect Comp Answer Sheet - newKayla Davenport
This document provides a case study with instructions to analyze production, costs, and market equilibrium under perfect competition across the short run and long run. Key results include:
- In the short run, the market equilibrium price is $735.29 and quantity is 29.42. Individual firms earn positive profits.
- In the long run, entry and exit of firms will occur until the number adjusts so that price equals minimum average total cost for firms. Profits are driven to zero.
- Graphs are used to illustrate the short run and long run equilibrium outcomes for individual firms and the overall market.
Effect of isoelastic form of price dependent demand in cooperative advertisingiosrjce
This is an extension of the co-operative advertising model developed earlier by the authors. We
develop a manufacturer-retailer channel co ordination where the demand is modeled as a multiplicative effect
of price and an additive sales response function. We change the form of demand here as an extension to earlier
model developed by the authors .We use isoelastic form of the price dependent demand instead of the linear
form to observe changes in the model if any. We develop both sequential and simultaneous moves non cooperative
game structures where both retailer and manufacturer act simultaneously and independently and
compare them through propositions. Finally we develop a cooperative model and discuss the optimality of
pareto efficient scheme.
This document discusses profit maximization by firms. It explains that a firm's profit is its revenue minus its costs. Revenue is determined by price and quantity sold, while costs depend on quantity produced. To maximize profit, a firm balances the marginal benefit of additional sales (marginal revenue) against the marginal cost of production. The profit-maximizing quantity occurs where marginal revenue equals marginal cost. The document provides an example and discusses the differences between price-setting firms with downward-sloping demand curves and price-taking firms that face a horizontal demand curve.
Testing for the 'January Effect' under the CAPM frameworkLov Loothra
In this project, we used the Capital Assets Pricing Model (CAPM) to test for the ‘January effect’ - a calendar‐related market anomaly in the financial market where financial security prices increase in the month of January.
Please refer to "Chapter 2 – The Capital Asset Pricing Model: An Application of Bivariate Regression Analysis" of the book "The Practice of Econometrics" by Ernst R. Bernd for the test data, background and problem statement.
The document provides examples of algorithms and asks the reader to complete tasks related to algorithms including:
1) Stating 3 examples of algorithms used in real life, writing 1 algorithm from the examples, and writing algorithms for preparing instant noodles and using a vending machine.
2) Converting a pseudo code algorithm to a flowchart and a flowchart to pseudo code.
3) Determining the inputs and outputs for algorithms that find the circumference of a circle, perform math operations on two numbers, calculate the cost of apples, and determine if a number is odd or even and calculate averages.
2. slide 2
Tre modele te ASTre modele te AS
1. Modeli me paga fikse
2. Modeli me informacion joperfekt
3. Modeli me cmime fikse
( )e
Y Y P P= + −α
natural rate
of output
a positive
parameter
the expected
price level
the actual
price level
agg.
output
3. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 3
The sticky-wage modelThe sticky-wage model
Assumes that firms and workers negotiate
contracts and fix the nominal wage before they
know what the price level will turn out to be.
The nominal wage they set is the product of a
target real wage and the expected price level:
e
Wω P= ×
e
W P
ω
P P
⇒ = ×
Target
real
wage
4. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 4
Modeli me Paga fikseModeli me Paga fikse
NQS
e
W P
ω
P P
= ×
e
P P=
e
P P>
e
P P<
Atehere
Papunesia dhe outputi ne
nivelin antyror
Pagat reale me pak se niveli i
targetuar, keshtu firmat
punesojne me shume dhe outputi
rritet me shume se niveli natyror
Pagat reale e tejkalojne, firmat
punesojne me pak punetore dhe
outputi bie.
5. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 6
Modeli me Paga fikseModeli me Paga fikse
Pagat reale duhet te jene kunder ciklike, duhet
te levizin ne drejtim te kundert me outputin me
ciklin e biznesit:
– Ne periudha ekspansioniste, kur P rritet,
pagat reale bien.
– Ne recension, kur P bie, pagat reale bien.
6. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 7
Modeli me informacion joperfektModeli me informacion joperfekt
SUPOZIMET:
Cmimet dhe pagat jane fleksibel, tregjet jane te
pastruara
Cdp ofrues prodhon nje te mire, konsumon
shume te mira
Cdo prodhues njeh cmimin nominal te te mires
qe prodhon, por jo cmimin e plote.
7. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 8
Modeli me informacion joperfektModeli me informacion joperfekt
Oferta e cdo produkti varet nga cmimi relativ: cmimi
nominal pjesetuar me cmimin total
Ofruesi nuk e di cmimin kur vendis sasine e
prodhimit, keshtu qe perdor, P e
.
Supozoni P rritet por P e
jo.
Ofruesi mendon qe cmimet jane rritur, keshtu qe
prodhon me shume.
Ne kete menyre,
Y do te rritet sa here qe P rritet mbi P e
.
8. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 9
Modeli me cmime fikseModeli me cmime fikse
Arsyet per fiksim te cmimeve:
– Kontratat afatgjata midis firmave dhe
konsumatoreve
– Kostot e menuve
– Firmat nukduan te merzisin konsumatoret me
ndryshimin e cmimeve
Supozime:
– Firma vendos cmime
(e.g. ne konkurencen monopolistike)
9. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 10
Modeli me cmime fikseModeli me cmime fikse
Firma vendos
kur a > 0.
Supozoni se ka dy tipe firma:
• Firma me cmime fleksibel, vendos cmime nen
• Firma me cmime fikse, P dhe Y do te jene:
( )p P Y Y= + −a
( )e e e
p P Y Y= + −a
10. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 11
Modeli me cmime fikseModeli me cmime fikse
Supozoni cmime fikse presin qe outputi ne
nivelin natyror. Atehere,
( )e e e
p P Y Y= + −a
e
p P=
s pjesa e firmes me cmime fikse.
11. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 12
Modeli me cmime fikseModeli me cmime fikse
(1−s )P nga te dy anet:
(1 )[ ( )]e
P s P s P Y Y= + − + −a
Cmime fleksibelCmimi fiks
(1 )[ ( )]e
sP s P s Y Y= + − −a
Pjesetuar me s :
(1 )
( )e s
P P Y Y
s
−
= + −
a
12. slide 13
Modeli me cmime fikseModeli me cmime fikse
P e
e larte ⇒ P e larte
nqs firmat rrisin cmimin, atehere firmat qe duhet te
vendosin cmimet te larta.
Cdo firme vendos cmime te larta.
Y I larte ⇒ P i larte
Kur kerkesa per te mira eshte e larte firmat me
cmime fleksibel vendosin cmime te larta.
Sa me i larte fraksioni i frimave me cmime fleksibel,
aq me e vogel eshte s dhe me e larte eshte efekti i
∆Y ne P.
(1 )
( )e s
P P Y Y
s
−
= + −
a
13. slide 14
Modeli me Cmime fikseModeli me Cmime fikse
Derivoni AS duke zevendesuar ne Y :
(1 )
( )e s
P P Y Y
s
−
= + −
a
( ),e
Y Y P P= + −α
where
(1 )
s
s
=
− a
α
14. slide 15
Modeli me cmime fikseModeli me cmime fikse
Ndryshe nga modeli me paga fikse, modeli me
cmime fikse nenkupton nje model prociklike:
Supozoni se outputi agregat/te ardhurat bien.
Atehere,
Firmat presin qe kerkesa te bie.
Firmat me cmime fikse ulin prodhimin dhe ulin
kerkesen per pune.
Zhvendosja majtas e kurbes se kerkeses ben
qe pagat reale ye bien.
16. slide 17
PermbledhjePermbledhje
Supozoni nje shok
pozitiv te AD
dhe P rritet mbi P e
Y
P LRAS
SRAS
1
equation: ( )e
Y Y P P= + −αSRAS
1 1
e
P P=
SRAS
2
AD1
AD2
2
e
P =
2P
3 3
e
P P=
P e
rritet,
SRAS zhvendoset lart,
dhe outputi vendoset ne
nivelin natyror
1Y Y=
2Y
3Y =
17. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 18
Chapter summaryChapter summary
1. Three models of aggregate supply in the short
run:
sticky-wage model
imperfect-information model
sticky-price model
All three models imply that output rises above its
natural rate when the price level falls below the
expected price level.
18. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 19
Chapter summaryChapter summary
2. Phillips curve
derived from the SRAS curve
states that inflation depends on
expected inflation
cyclical unemployment
supply shocks
presents policymakers with a short-run
tradeoff between inflation and unemployment
19. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 20
Chapter summaryChapter summary
3. How people form expectations of inflation
adaptive expectations
based on recently observed inflation
implies “inertia”
rational expectations
based on all available information
implies that disinflation may be
painless
20. CHAPTER 13CHAPTER 13 Aggregate SupplyAggregate Supply slide 21
Chapter summaryChapter summary
4. The natural rate hypothesis and hysteresis
the natural rate hypotheses
states that changes in aggregate
demand can only affect output and
employment in the short run
hysteresis
states that agg. demand can have
permanent effects on output and
employment
Chapter 13 has two parts. The first concerns aggregate supply. In the preceding chapters, we made the simple and extreme assumption that all prices were “stuck” in the short run. This assumption implied a horizontal short-run aggregate supply curve. More realistic models of aggregate supply imply an upward-sloping SRAS curve. Chapter 13 presents three of the most prominent models.
The second half of the chapter is devoted to the Phillips curve and related issues. The section uses a few lines of algebra to derives an expression for the Phillips curve from the SRAS equation. This is followed by a discussion of adaptive and rational expectations, and the sacrifice ratio. The chapter concludes by contrasting the notion of hysteresis to the natural rate hypothesis.
To help your students master the material, it would be helpful to assign homework or in-class exercises in which students use the models to analyze the effects of policies and shocks. Right before the introduction of the Phillips curve would be a good place to have students work an exercise using the IS-LM-AD-AS model with a postively-sloped SRAS curve. The key difference is that, in the short run, a shift in AD causes P to change, which changes M/P, which shifts LM a bit, which explains why the short-run change in output is smaller when SRAS is upward-sloping than when it is horizontal.
I’ve included Figure 13-1 on p.350 of the text as a “hidden slide” in case you wish to “unhide” and include it in your presentation. This figure uses graphs to derive the aggregate supply curve under the assumption of sticky wages.
As you can see, three-panel diagrams do not translate well to the big screen. Fortunately, though, most students readily grasp the intuition on the preceding slide, which sums up as follows: if the nominal wage is fixed, then increases in the price level cause the real wage to fall, which causes firms to hire more workers and produce more output.
If you don’t like the appearance of the term “monopolistic competition” in this slide, just change the parenthetical comment to “(i.e. firms have some market power)” or something to that effect.
The following is not in the text, but you and your students may find it worthwhile:
There are good reasons to believe that the SRAS curve is bow-shaped in the real world; that is, the curve is steeper at high levels of output than at low levels of output. And there are good reasons why we should care about this.
Why the SRAS curve is bow-shaped:
At low levels of output, there are lots of unutilized and under-utilized resources available, so it is not terribly costly for firms to increase output, and therefore firms do not require a big increase in prices to make them willing to increase output by a given amount. In contrast, at very high levels of output, when unemployment is below the natural rate and capital is being used at higher than normal intensity levels, it is relatively costly for firms to increase output further. Hence, a larger increase in prices is required to make firms willing to increase their output.
Why the curvature matters:
When policymakers increase aggregate demand, output rises (good) and prices rise (not good). An important question arises: how much of the bad thing (price increases) must we tolerate to get some of the good thing (an increase output)? The answer depends on how steep the SRAS curve is.
When President Reagan cut taxes in the early 1980s, the economy was just coming out of a severe recession, and was on the flatter part of the SRAS curve; hence, the tax cuts affected output a lot and inflation very little. In contrast, when the current President Bush proposed huge tax cuts during the 2000 election season, we were on the steeper part of the SRAS curve, so the tax cuts would likely have been inflationary. Of course, by the time they were implemented, the economy was in recession, and in any case the bulk of the tax cuts were to be spread out over 10 or 11 years, so they have not proved inflationary.
This graph has two lessons for students:
First, changes in the expected price level shift the SRAS curve (this should be clear from the equation, as should the fact that a change in the natural rate of output will shift the SRAS curve).
The second lesson concerns the adjustment of the economy back to full-employment output.