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.
Trang 1Managerial Economics
Week 2: Markets
Trang 2Buyers, 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
Trang 3Examples 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
Trang 4 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
Trang 5Market 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.
Trang 6Law 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
Trang 7Why 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
Trang 8Who 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%.
Trang 9Why 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
Trang 10Min wage laws
do not affect
highly skilled
workers
They do affect
teen workers
Studies:
A 10% increase
in the min wage
raises teen
unemployment
by 1-3%
The Minimum Wage
W
L D
S
$4
Min
wage
$5
400 550
unemp-loyment
Trang 11Elasticity of Demand
Price elasticity
Percentage change in Q d Percentage change in P
Trang 12Elasticity & 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
Trang 13Information & 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
Trang 14The 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.
Trang 15The 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