Lecture Managerial economics - Chapter 2 introduce markets. This chapter provides to students: Buyers, sellers, goods, and information; demand; market equilibrium; law of one price;... Inviting you to refer.
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Nội dung Text: Lecture Managerial economics - Chapter 2: Markets
- Managerial Economics
Week 2: Markets
1-1
- Buyers, Sellers, Goods, and
Information
How prices convey information
How markets operate –where information
is obtained and purchases and sales are
transacted.
Markets reduce the transactions costs of
making exchanges
1-2
- Examples of Markets
Markets are where people make comparisons.
Buyers and sellers interact with the goal of an
exchange taking place.
Some markets have strict protocols (auction); others
less so
1-3
- Demand
Demand always a time dimension; hours, days,
weeks.
Demand concerns the consumption side of the
market
A demand curve identifies the maximum amount
consumers are willing to pay for any given amount
of a good.
The difference between the amount consumers
are willing to pay and the amount they have to pay
is called consumer surplus.
Changes in non-price factors shift demand curve.
1-4
- Market Equilibrium
When a market comes to rest and there are no
additional mutually acceptable trades to be
made, we say the market has reached an
equilibrium.
1-5
- Law of One Price
Arbitrage–trading to take advantage of
price difference. Arbitrage brings a
single price to a market in which
prices for a good differ only by
transactions costs.
Speculation –taking one side of the
market with the assumption that price
will move in your direction.
Speculators give markets liquidity.
1-6
- Why Equilibrium Matters –A
Price Ceiling
Price ceiling: a legal maximum on the
price of a good or service. Example: rent
control.
At the ceiling price we see that a
shortage of the good will exist.
The amount consumers wish to purchase
at the ceiling price exceeds the amount
sellers wish to sell.
1-7
- Who Benefits from a Price
Ceiling?
If regulations set a
ceiling on the interest
rate banks could pay
depositors at 4%, then
depositors would only
want to deposit $400
billion. The rate that
banks could then
charge to ration the
available funds would
be 12%.
1-8
- Why Equilibrium Matters –A
Price Floor
Price floor: a legal minimum on the price
of a good or service. Example: minimum
wage.
At the floor price we see that a surplus
will exist.
The amount that sellers wish to sell at the
floor price exceed the amount consumers
wish to buy.
1-9
- The Minimum Wage
Min wage laws unemp-
do not affect W loyment S
highly skilled Min.
$5
workers. wage
They do affect $4
teen workers.
Studies:
A 10% increase
in the min wage D
raises teen L
400 550
unemployment
by 1-3%.
1-10
- Elasticity of Demand
Price elasticity Percentage change in Qd
=
of demand Percentage change in P
1-11
- Elasticity & Total Revenue
On the demand curve’s elastic portion a
decrease in price will increase TR.
Where demand is inelastic, a price
decrease will decrease TR.
All market sellers know what the demand
curve they face “looks like”; they know
the coefficient of elasticity
1-12
- Information & Markets
Prices are discovered in markets
Prices are Adam Smith’s “Invisible Hand”
Society lacks the computing power to
make all the decisions that a market
makes daily to determine prices and
allocate resources.
1-13
- The Present and the Future-
Speculators
Here is what happens both with and without
speculation.
Consider a commodity whose peak harvest occurs in
October while smaller amounts come to market in
other months.
Without speculation, all of each month’s production is
immediately sold and consumed.
Speculators will buy when it is abundant and hold it in
expectation of gains from being able to resell it later
for more money, which will reduce the price
fluctuations.
1-14
- The Present and the Future-
Information & Revision of Prices
The market price is affected by information
besides that in weather forecasts.
For instance, an expert on grocery markets
expects that a continuing trend for low-
carbohydrate diets will decrease the
economy’s demand for wheat.
An expert on foreign policy hears from
informed sources that the government will
soon initiate policies to raise wheat exports.
1-15
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