L08 Buying and Selling.

Slides:



Advertisements
Similar presentations
Budgetary and Other Constraints on Choice
Advertisements

3.3 Labour Supply Assumptions of the Model
Intermediate Microeconomic Theory
The Theory of Consumer Choice
Chapter Nine Buying and Selling. Endowments u The list of resource units with which a consumer starts is his endowment. u A consumer’s endowment will.
SL354, Intermediate Microeconomics Week 1 : March 3 – 7 MondayTuesdayThursdayFriday Exam 1 Exam 2 Exam 3 Exam 4 Exam 5 Problem Set 3 Equilibrium Varian,
Demand. Consumer Demand Consumer’s demand functions:
Choice Continued.
Chapter Nine Buying and Selling. u Trade involves exchange -- when something is bought something else must be sold. u What will be bought? What will be.
Chapter Nine Buying and Selling. u Trade involves exchange, so when something is bought something else must be sold. u What will be bought? What will.
© 2010 W. W. Norton & Company, Inc. 9 Buying and Selling.
Chapter 5 Applying Consumer Theory. © 2004 Pearson Addison-Wesley. All rights reserved5-2 Figure 5.1 Deriving an Individual’s Demand Curve.
Chapter Nine Buying and Selling. u Trade involves exchange -- when something is bought something else must be sold. u What will be bought? What will be.
Consumer Choice. Learning Objectives: Understanding consumer opportunity and consumer preference How do changes in price and income influence consumer.
1 Intermediate Microeconomic Theory Labor Supply.
Example: Suppose worker utility is given by The more C and L the happier is the worker Worker Utility C ($) L (hours) U (utils)
1 Endowments. 2 Buying and Selling Trade involves exchange -- when something is bought something else must be sold. What will be bought? What will be.
4-1 Economics: Theory Through Applications. 4-2 This work is licensed under the Creative Commons Attribution-Noncommercial-Share Alike 3.0 Unported License.
RL1 Review. u A decisionmaker chooses its most preferred alternative from the affordable ones. u Budget set u Preferences (Utility) u Choice (Demand)
L08 Buying and Selling. u Model of choice u We know preferences and we find demands u Q: Where does the mysterious income come from? u From selling goods.
Chapter 9 BUYING AND SELLING. 9.1 Net and Gross Demands Endowments : (  1,  2 )  how much of the two goods the consumer has before he enters the market.
Intermediate Microeconomic Theory Intertemporal Choice.
Labor Supply. What is a labor supply curve? What is its shape? Why?
Intermediate Microeconomic Theory
ECN 201: Principles of Microeconomics
The Theory of Consumer Choice
12. Taxation and Economic Efficiency
L08 Buying and Selling.
L07 Slutsky Equation.
Choice.
Chapter 8: Possibilities, Preferences, and Choices
L06 Demand.
12 Uncertainty.
Microeconomics 1000 Lecture 16 Labour supply.
L08 Buying and Selling.
Application 1: Labor supply
L07 Slutsky Equation.
L08 Buying and Selling.
L06 Demand.
L09 Review.
General Equilibrium (Social Efficiency)
Buying and Selling: Applications
Buying and Selling: Applications
Buying and Selling: Uncertainty
L08 Buying and Selling.
L13 General Equilibrium.
Application 1: Labor supply
L07 Slutsky Equation.
L08 Buying and Selling.
TOPICS FOR FURTHER STUDY
Chapter 33 Production.
RL1 Review.
TOPICS FOR FURTHER STUDY
Choice.
3.3 Labour Supply Assumptions of the Model
Application 1: Labor supply
L07 Slutsky Equation.
5 Choice.
Molly W. Dahl Georgetown University Econ 101 – Spring 2009
Buying and Selling: Applications
L08 Buying and Selling.
Chapter 9 Buying and Selling
L07 Slutsky Equation.
MICROECONOMICS Principles and Analysis Frank Cowell
Chapter 9 Buying and Selling.
Application 1: Labor supply
MICROECONOMICS Principles and Analysis Frank Cowell
L06 Demand.
Presentation transcript:

L08 Buying and Selling

Review Model of choice We know preferences and we find demands Q: Where does the mysterious income come from? From selling goods (e.g. labor)! Today: Model of choice with endowments

Endowments Instead of nominal income: goods The list of commodities with which a consumer starts is his endowment. A consumer’s endowment will be denoted by the vector (omega). Example

Budget constraint Suppose p1=2 and p2=3 and what is the value of endowment? What is a collection of all affordable bundles (budget set)?

Budget Constraints Revisited Given p1 and p2, the budget constraint for a consumer with an endowment is Example:

Budget Constraints Revisited x2 w2=5 w1=5 x1

More generally x2 w2 w1 x1

Net Demands Net demands: actual trades of a consumer Example Net demands (buying, selling)?

Budget Constraints Revisited The constraint is The sum of the values of a consumer’s net demands is zero. Buying, selling?

Buying, Selling? x2 w2=5 w1=5 x1

Optimal Choice Almost the same as before We only need to find m first When are we net buyers of good 1? We first answer it graphically Price offer curve

Optimal Choice x2 |MRS( )| =1 x1

Optimal Choice x2 |MRS( )| =1 x1

Optimal Choice x2 MRS( ) =1 x1

Price Offer Curve x2 x1

Cobb-Douglass

Labor Supply Two “goods”: leisure time, R, and consumption, C A worker is endowed with time 24h Consumption good’s price is pc. w is the wage rate in $.

Labor Supply The worker’s budget constraint is where C, R denote gross demands for the consumption good and for leisure. This can be rewritten as

Labor Supply C 24 R

Labor Supply C 24 R

Cobb Douglass C 24 R

Backward-Bending Supply 24 R