Lecture Managerial economics - Chapter 2: Markets

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.
Nội dung trích xuất từ tài liệu:
Lecture Managerial economics - Chapter 2: MarketsManagerial 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. 1-9The 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 DemandPrice 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