Microeconomic Tools

Supply and Demand In microeconomics, we typically have suppliers reacting positively to price, and demanders reacting negatively. The two of them combine to provide an equilibrium, that indicates the market quantity and the market price.

Price Apples Demand for Apples

What affects demand? Price of the good Prices of other goods Consumer income Tastes

Price Apples Demand with higher income Demand for Apples

Supply of Apples Apples

What affects supply? Technological change Input prices Prices of Production-Related Goods Size of the Industry Weather

Supply of Apples Apples Improved technology Poor weather

Equilibrium of Demand and Supply Apples Supply Demand

Equilibrium of Demand and Supply Apples Supply Demand Total Revenue, Total Expenditures

Equilibrium of Demand and Supply Apples Supply Demand Shift in Demand

Equilibrium of Demand and Supply Apples Supply Demand Shift in Supply

Equilibrium of Demand and Supply Apples Supply Demand Shift in Supply Shift in Demand

Utility Analysis? In principles courses we often measure utility -- sometimes use “utils”... which is dorky (most of the time). For several analyses in health economics, we’ll want to use more modern analysis …, although for insurance, we’ll go back to “utils” Ordinal utility

Indifference Curves Pounds of Spam Health Club Visits

Indifference Curves Pounds of Spam Higher level of utility Health Club Visits

How much is bought? Pounds of Spam In a month Visits = $20/visit Spam = $10/pound Income = $1500 If price of Spam doubles? Health Club Visits

Putting them together Pounds of Spam In a month Prescriptions = $20/visit Spam = $10/pound Income = $1500 Health Club Visits

Putting them together Pounds of Spam In a month Visits = $20/visit Spam = $10/pound Income = $1500 U1U1 U2U2 Health Club Visits

Putting them together Pounds of Spam In a month Visits = $15/visit Spam = $10/pound Income = $1500 U increases More visits More Spam Why? Health Club Visits

A close look at the tangency Pounds of Spam In a month Visits = $20/visit Spam = $10/pound Income = $1500 U2U2 -  U/  v = - Mgl. utility of visits  U/  s = Mgl. utility of Spam -p h  v +p s  s Health Club Visits

A close look at the tangency Pounds of Spam U2U2 -  U/  v = - Mgl. utility of visits  U/  s = Mgl. utility of Spam -p h  v +p s  s -p v  v + p s  s = 0  v/  s = p s /p v Now, for utility MU v /Mu s = (  U/  v)/(  U/  s) =  s/  v p s /p v =  v/  s = MU s /Mu v or Mu v /p v = MU s / p s In a month Visits = $20/visit Spam = $10/pound Income = $1500 Health Club Visits