Elasticity: an Introduction
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Efficient Mechanisms for Public Goods with Use Exclusions* 1 Introduction
Ecient Mechanisms for Public Goods with Use Exclusions y Peter Norman May 15, 2002 Abstract This pap er studies \voluntary bargaining agreements" in an environment where preferences over an excludable public go o d are private information. Unlike the case with a non-excludable public go o d, there are non-trivial conditions when there is signi cant provision in a large econ- omy. The provision level converges in probability to a constant, which makes it p ossible to approximate the optimal solution by a simple xed fee mechanism, whichinvolves second degree price discrimination if identities are informative ab out the distribution of preferences. Truth- telling is a dominant strategy in the xed fee mechanism. Being able to limit a public go o ds' consumption do es not make it a turn-blue private good. For what, after all, are the true marginal costs of having one extra family tune in on the program. They are literally zero. Why then limit any family which would receive p ositive pleasure from tuning in on the program from doing so? [Samuelson [24 ], pp 335] 1 Intro duction Virtually all theory on collective goods considers a \pure" public good, which is non-excludable and non-rival in consumption. Obviously, these prop erties need not go hand in hand. In fact, it I'm indebted to Mark Armstrong and two referees who challenged me to write a more interesting pap er than the initial draft. I also thank Ray Deneckere, John Kennan, Bart Lipman, George Mailath, Ro dy Manuelli, Andrew Postlewaite, Larry Samuelson, William Sandholm and participants at several conferences and academic institutions for comments and helpful discussions. -
CRIME and DURABLE GOODS Sebastian Galiani Laura Jaitman
CRIME AND DURABLE GOODS Sebastian Galiani Laura Jaitman Federico Weinschelbaum WORKING PAPER 22788 NBER WORKING PAPER SERIES CRIME AND DURABLE GOODS Sebastian Galiani Laura Jaitman Federico Weinschelbaum Working Paper 22788 http://www.nber.org/papers/w22788 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2016, Revised August 2018 The authors thank Omar Chisari, Victor Filipe, Francisco Poggi, and participants at the following seminars for helpful comments: 2018 Royal Economic Society Annual Conference, Wharton School, Fundação Getulio Vargas EESP, Universidad Diego Portales, Academia Nacional de Ciencias Economicas of Argentina, World Bank and LICIP Crime and Policies seminar at Universidad Torcuato Di Tella. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2016 by Sebastian Galiani, Laura Jaitman, and Federico Weinschelbaum. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Crime and Durable Goods Sebastian Galiani, Laura Jaitman, and Federico Weinschelbaum NBER Working Paper No. 22788 October 2016, Revised August 2018 JEL No. K0,K00 ABSTRACT We develop a theoretical model to study how changes in the durability of the goods affects prices of stolen goods, the incentives to steal and the equilibrium crime rate. When studying the production of durable goods, we find that the presence of crime affects consumer and producer surplus and thus their behaviour, market equilibrium, and, in turn, the social optimum. -
Demand Composition and the Strength of Recoveries†
Demand Composition and the Strength of Recoveriesy Martin Beraja Christian K. Wolf MIT & NBER MIT & NBER September 17, 2021 Abstract: We argue that recoveries from demand-driven recessions with ex- penditure cuts concentrated in services or non-durables will tend to be weaker than recoveries from recessions more biased towards durables. Intuitively, the smaller the bias towards more durable goods, the less the recovery is buffeted by pent-up demand. We show that, in a standard multi-sector business-cycle model, this prediction holds if and only if, following an aggregate demand shock to all categories of spending (e.g., a monetary shock), expenditure on more durable goods reverts back faster. This testable condition receives ample support in U.S. data. We then use (i) a semi-structural shift-share and (ii) a structural model to quantify this effect of varying demand composition on recovery dynamics, and find it to be large. We also discuss implications for optimal stabilization policy. Keywords: durables, services, demand recessions, pent-up demand, shift-share design, recov- ery dynamics, COVID-19. JEL codes: E32, E52 yEmail: [email protected] and [email protected]. We received helpful comments from George-Marios Angeletos, Gadi Barlevy, Florin Bilbiie, Ricardo Caballero, Lawrence Christiano, Martin Eichenbaum, Fran¸coisGourio, Basile Grassi, Erik Hurst, Greg Kaplan, Andrea Lanteri, Jennifer La'O, Alisdair McKay, Simon Mongey, Ernesto Pasten, Matt Rognlie, Alp Simsek, Ludwig Straub, Silvana Tenreyro, Nicholas Tra- chter, Gianluca Violante, Iv´anWerning, Johannes Wieland (our discussant), Tom Winberry, Nathan Zorzi and seminar participants at various venues, and we thank Isabel Di Tella for outstanding research assistance. -
1 Unit 4. Consumer Choice Learning Objectives to Gain an Understanding of the Basic Postulates Underlying Consumer Choice: U
Unit 4. Consumer choice Learning objectives to gain an understanding of the basic postulates underlying consumer choice: utility, the law of diminishing marginal utility and utility- maximizing conditions, and their application in consumer decision- making and in explaining the law of demand; by examining the demand side of the product market, to learn how incomes, prices and tastes affect consumer purchases; to understand how to derive an individual’s demand curve; to understand how individual and market demand curves are related; to understand how the income and substitution effects explain the shape of the demand curve. Questions for revision: Opportunity cost; Marginal analysis; Demand schedule, own and cross-price elasticities of demand; Law of demand and Giffen good; Factors of demand: tastes and incomes; Normal and inferior goods. 4.1. Total and marginal utility. Preferences: main assumptions. Indifference curves. Marginal rate of substitution Tastes (preferences) of a consumer reveal, which of the bundles X=(x1, x2) and Y=(y1, y2) is better, or gives higher utility. Utility is a correspondence between the quantities of goods consumed and the level of satisfaction of a person: U(x1,x2). Marginal utility of a good shows an increase in total utility due to infinitesimal increase in consumption of the good, provided that consumption of other goods is kept unchanged. and are marginal utilities of the first and the second good correspondingly. Marginal utility shows the slope of a utility curve (see the figure below). The law of diminishing marginal utility (the first Gossen law) states that each extra unit of a good consumed, holding constant consumption of other goods, adds successively less to utility. -
Demand Demand and Supply Are the Two Words Most Used in Economics and for Good Reason. Supply and Demand Are the Forces That Make Market Economies Work
LC Economics www.thebusinessguys.ie© Demand Demand and Supply are the two words most used in economics and for good reason. Supply and Demand are the forces that make market economies work. They determine the quan@ty of each good produced and the price that it is sold. If you want to know how an event or policy will affect the economy, you must think first about how it will affect supply and demand. This note introduces the theory of demand. Later we will see that when demand is joined with Supply they form what is known as Market Equilibrium. Market Equilibrium decides the quan@ty and price of each good sold and in turn we see how prices allocate the economy’s scarce resources. The quan@ty demanded of any good is the amount of that good that buyers are willing and able to purchase. The word able is very important. In economics we say that you only demand something at a certain price if you buy the good at that price. If you are willing to pay the price being asked but cannot afford to pay that price, then you don’t demand it. Therefore, when we are trying to measure the level of demand at each price, all we do is add up the total amount that is bought at each price. Effec0ve Demand: refers to the desire for goods and services supported by the necessary purchasing power. So when we are speaking of demand in economics we are referring to effec@ve demand. Before we look further into demand we make ourselves aware of certain economic laws that help explain consumer’s behaviour when buying goods. -
The Durapolist Puzzle: Monopoly Power in Durable-Goods Markets
The Durapolist Puzzle: Monopoly Power in Durable-Goods Markets Barak Y. Orbacht This Article studies the durapolist, the durable-goods monopolist. Durapolists have long argued that, unlike perishable-goods monopolists, they face difficulties in exercising market power despite their monopolistic position. During the past thirty years, economists have extensively studied the individual arguments durapolists deploy regarding their inability to exert market power. While economists have confirmed some of these arguments, a general framework for analyzing durapolists as a distinct group of monopolists has not emerged. This Article offers such a framework. It first presents the problems of durapolists in exercising market power and explains how courts have treated these problems. It then analyzes the strategies durapolists have devised to overcome difficulties in acquiringand maintainingmonopoly power and the legal implications of these strategies. This Article's major contributions are (a) expanding the conceptual scope of the durapolistproblem, (b) presenting the durapolist problem as an explanationfor many common business practices employed by durapolists, and (c) analyzing the legal implications of strategies employed to overcome the durapolistproblem. Introduction ........................................................................................... 68 I. The Durapolist Problem: Extracting Rent for Future Consumption ................................................................................. 69 A. Durablesvs. Perishables...................................................... -
Tpriv ATE STRATEGIES, PUBLIC POLICIES & FOOD SYSTEM PERFORMANC-S
tPRIV ATE STRATEGIES, PUBLIC POLICIES & FOOD SYSTEM PERFORMANC-S Alternative Measures of Benefit for Nonmarket Goods Which are Substitutes or Complements for Market Goods Edna Loehman Associate Professor Agricultural Economics and Economics Purdue University ---WORKING ,PAPER SERIES ICS A Joint USDA Land Grant University Research Project April 1991 Alternative Measures of Benefit for Nonmarket Goods Which are Substitutes or Complements for Market Goods Edna Loehman Associate Professor Agricultural Economics and Economics Purdue University ABSTRACT Nonmarket goods include quality aspects of market goods and public goods which may be substitutes or complements for private goods. Traditional methods of measuring benefits of exogenous changes in nonmarket goods are based on Marshallian demand: change in spending on market goods or change in consumer surplus. More recently, willingness to pay and accept have been used as welfare measures . This paper defines the relationships among alternative measures of welfare for perfect substitutes, imperfect substitutes, and complements. Examples are given to demonstrate how to obtain exact measures from systems of market good demand equations . Thanks to Professor Deb Brown, Purdue University, for her encouragement and help over the period in which this paper was written. Thanks also to the very helpful anonymous reviewers for Social Choice and Welfare. -1- Alternative Measures of Benefit for Nonmarket Goods Which are Substitutes or Complements for Market Goods Edna Loehman Department of Agricultural Economics Purdue University Introduction This paper concerns the measurement of benefits for nonmarket goods. Nonmarket goods are not priced directly in a market . They include public goods and quality aspects of market goods. The need for benefit measurement arises from the need to evaluate government programs or policies when nonmarket goods are provided or are regulated by a government . -
Understand How Various Factors Shift Supply Or Demand and Understand the Consequences for Equilibrium Price and Quantity.”
Microeconomics Topic 3: “Understand how various factors shift supply or demand and understand the consequences for equilibrium price and quantity.” Reference: Gregory Mankiw’s Principles of Microeconomics, 2nd edition, Chapter 4. The Supply and Demand Model Supply and demand is a model for understanding the how prices and quantities are determined in a market system. The explanation works by looking at two different groups -- buyers and sellers -- and asking how they interact. The supply and demand model relies on a high degree of competition, meaning that there are enough buyers and sellers in the market for bidding to take place. Buyers bid against each other and thereby raise the price, while sellers bid against each other and thereby lower the price. The equilibrium is a point at which all the bidding has been done; nobody has an incentive to offer higher prices or accept lower prices. Perfect competition exists when there are so many buyers and sellers that no single buyer or seller can affect the price on the market. Imperfect competition exists when a single buyer or seller has the power to influence the price on the market. For more discussion of perfect and imperfect competition, see the notes on Microeconomics topic 7. The supply and demand model applies most accurately when there is perfect competition. In reality, few markets are perfectly competitive. However, the supply and demand framework still provides a good approximation for what is happening much of the time. The Consumer Side of the Market Demand is the relationship between the price of a good and the quantity of the good that consumers are willing and able to buy. -
Comparative Statics and the Gross Substitutes Property of Consumer Demand
Comparative Statics and the Gross Substitutes Property of Consumer Demand Anne-Christine Barthel1 and Tarun Sabarwal Abstract. The gross substitutes property of demand is very useful in trying to understand stability of the standard Arrow-Debreu competitive equilibrium. Most attempts to derive this property rely on aspects of the demand curve, and it has been hard to derive this property using assumptions on the primitive utility function. Using new results on the comparative statics of demand in Quah (Econometrica, 2007), we provide simple and easy conditions on utility functions that yield the gross substitutes property. Quah provides conditions on utility functions that yield normal demand. We add an assumption on elasticity of marginal rate of substitution, which combined with Quah's assumptions yields gross substitutes. We apply this assumption to the family of constant elasticity of substitution preferences. Our approach is grounded in the standard comparative statics decomposition of a change in demand due to a change in price into a substitution eect and an income eect. Quah's assumptions are helpful to sign the income eect. Combined with our elasticity assumption, we can sign the overall eect. As a by-product, we also present conditions which yield the gross complements property. PRELIMINARY AND INCOMPLETE 1 Department of Economics, University of Kansas, Lawrence, KS 66045 Email: [email protected] 1 2 1. Introduction In the standard Arrow-Debreu model, the gross substitutes property of demand provides insight into the question of a competitive equilibrium's stability. Its usefulness in this matter entails the question what assumptions will guarantee this property. -
Paul M. Romer
NBER WORKING PAPER SERIES ENDOCENOUSTECHNOLOGICAL CHANGE Paul M.Romer Working Paper No. 3210 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 December 1989 repared for the conference "The Problem of Economic Development,"SUNY uffalo,May 1988. 1 have benefitted from the comments of manyseminar and onference participants and two discussants (Rob Vishny, Buffalo May 1988,and ale Jorgenson, NBER Economic Fluctuations meeting, July 1988). Discussions ith Gary Becker, Karl Shell, Robert Lucas, Gene Grossman, and Elhanan Helpinan ere especially helpful. Research assistance was provided by DanyangXie. The riginal work was supported by NSF grant #SES-8618325. It wasrevised while I as a visitor at the Center for Advanced Study in the BehavioralSciences and upported by NSF grand #BNS87-00864. This paper is part of NBER'sresearch rogram in Growth. Any opinions expressed are thoseof the author not those of he National Bureau of Economic Research. NBER Working Paper #3210 December 1989 ENDOGENOUSTECHNOLOGICAL CHANGE ABSTRACT Growth in this model is driven by technological change that arises from intentional investment decisions made by profit maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good;it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported, and instead, the equilibriumis one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates,and that having a large population is not sufficient to generate growth. -
6.4 the Depreciation Rate
Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized 00 6 006 This paper is a product of the Poverty Global Practice Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. The author may be contacted at [email protected]. The Poverty & Equity Global Practice Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. ‒ Poverty & Equity Global Practice Knowledge Management & Learning Team This paper is co-published with the World Bank Policy Research Working Papers. Durable Goods and Poverty Measurement Nicola Amendola1 and Giovanni Vecchi23 JEL: C46, D31, I32, O15 Keywords: Measurement of poverty; Inequality; Consumption aggregate, Income Distribution 1 University of Rome “Tor Vergata” 2 University of Rome “Tor Vergata” 3 We are grateful to Lidia Ceriani, Sergio Olivieri, Marco Ranzani, Carlos Felipe Balcazar and Nobuo Yoshida for the useful comments received. 1 Introduction When it comes to measuring inequality and poverty, the choice and definition of an appropriate welfare indicator is not a straightforward task. -
Q1- Fill in the Blanks
Govt. of Bihar MUZAFFARPUR INSTITUTE OF TECHNOLOGY MUZAFFARPUR – 842003 (Under the Department of Science & Technology Govt. of Bihar, Patna) INDUSTRIAL ECONOMICS AND ACCOUNTANCY B.Tech 3rd Sem, EC + CE SOLUTION Q1- Fill in the blanks 1- X axis (Demand/ quantity) 2- Y axis (Price) 3- Perfect competition 4- Monopolistic competition 5- Negative 6- Positive 7- Rent/ Machinery/tools/insurance 8- Labour/material/electricity 9- Fixed 10- Variable Q2- Total variable cost= 7000 Rs Contribution= Selling Price- Cost= 4-0.5= 3.5 Rs BEP (no. of units) = Total variable cost/Contribution= 7000/3.5= 2000 units Percentage of maximum capacity = (10000/2000)*100= 20% Q3-All factors of production are traditionally classified in the following four groups: (i) Land: It refers to all natural resources which are free gifts of nature. Land, therefore, includes all gifts of nature available to mankind—both on the surface and under the surface, e.g., soil, rivers, waters, forests, mountains, mines, deserts, seas, climate, rains, air, sun, etc. (ii) Labour: Human efforts done mentally or physically with the aim of earning income is known as labour. Thus, labour is a physical or mental effort of human being in the process of production. The compensation given to labourers in return for their productive work is called wages (or compensation of employees). Land is a passive factor whereas labour is an active factor of production. Actually, it is labour which in cooperation with land makes production possible. Land and labour are also known as primary factors of production as their supplies are determined more or less outside the economic system itself.