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Microeconomics Lecture 1

Micreconomics University of Manchester

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254 views12 pages

Microeconomics Lecture 1

Micreconomics University of Manchester

Uploaded by

Xero C
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ECON 20501: Microeconomic Analysis 3

All material of this course unit is protected by copyright.


You are not allowed to distribute outside the university.
For further information see:
http://subjects.library.manchester.ac.uk/copyright/home
©Horst.Zank
Lecturer: Professor Horst Zank (Room: ALB 3.026)
Office Hours: Wednesdays 9-11am;
No Office Hour in Reading Week (29.10-2.11.2018)
No Office Hour after 7 December 2017
Use SOHOL to book an office hour slot; if overbooked or you have
clashes please email: [email protected] for an
appointment specifying times of your availability.
27/08/2019 ECON 20501: Microeconomic Analysis 3 ©Horst.Zank 1
Lectures: Mondays 3-5pm in Mansfield Cooper G.20
(except reading week; 29 October)
1 Lecture: Tuesday 2 October 2018, 11-1pm in Moseley Theatre

Tutorials: As you register: Tuesdays and Thursdays and


Tutor: Atiyeh Yeganloo (ALB, 3rd floor)
Admin: Samantha Cockerill (ALB, Ground Floor Office)

Assessment: Two Components (In-class Tests & Final Exam)


In-Class tests: first 10 minutes in each class: (5% each x8= 40%)
January Exam: January 2018: TBC (90 min; counts 60%)
Structures: See Course Unit Document for more Details

Aims: Model Behaviour of Consumers, Producers, Markets


Objectives: Basic consumer theory, theory of the firm, partial
and general Equilibrium, & Welfare Notions.
27/08/2019 ECON 20501: Microeconomic Analysis 3 ©Horst.Zank 2
Plan:
Week beg. Lectures Tutorials In-Class Tests

24.09.18

01.10.18 Lectures 1-4

08.10.18 Lectures 5-6 Class 1 In-Class Test 1

15.10.18 Lectures 7-8 Class 2 In-Class Test 2

22.10.18 Lectures 9-10 Class 3 In-Class Test 3

29.10.18 Reading Week/NO OFFICE HOURS

05.11.18 Lectures 11-12 Class 4 In-Class Test 4

12.11.18 Lectures 13-14 Class 5 In-Class Test 5

19.11.18 Lectures 15-16 Class 6 In-Class Test 6

26.11.18 Class 7 In-Class Test 7

03.12.18 Class 8 In-Class Test 8

10.12.18

17.12.18 – 12.01.19 Christmas Break

13.01.19 – 26.01.19 Examination Period

27/08/2019 ECON 20501: Microeconomic Analysis 3 ©Horst.Zank 3


Develop Theories or Models: agents (consumers, producers)
Assumptions about Variables: exogenous vs. endogenous
Assumptions about Behaviour: optimise (utility, profits), fully
informed (about prices, behaviour), extremely competent (rational)
Markets: competitive; full information, rational agents
Output: a basic model, general, simple, adaptable, benchmark

Main Reading: Nicholson & Snyder (Microeconomic theory: basic


principles and extensions, South-Western, 2016)
Varian (Intermediate Microeconomics with Calculus,
Norton, 2014)
Do you want to be successful and excellent? Read beyond the
Lecture Notes and main References! Work on the exercises and ask
questions!
If you Buy New Books: inform & optimise (!) Blackwell's has books
in stock and can order more (they may match other retail prices)
Older editions may be available online
27/08/2019 ECON 20501: Microeconomic Analysis 3 ©Horst.Zank 4
The Idea of a (competitive) Market
Agents: are rational and optimise; they choose “the best”
given some economic constraints
Supply: Sellers of goods bring these to the market
(products; endowments); or they do not
Demand: Buyers of goods have a reservation price (maximum
willingness to pay: WTP)
Equilibrium: prices for goods adjust until the demanded objects
equals the supplied ones
p p Highest WTP p
Next highest WTP
Equilibrium
Total goods
supplied p*

q q q
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Comparative statics
Two static situations: we have equilibrium under the “ceteris
paribus” (i.e., one variable changes but all others remain fixed)

Example: additional supply


p D S S’

Example (Varian): suppose


p* this is a market for renting
apartments. Some apartments
p**
will be sold to customers.
What happens to the rental
q market price?

27/08/2019 ECON 20501: Microeconomic Analysis 3 ©Horst.Zank 6


Comparative statics
Example: new policy: all consumers can obtain extra lump-sum
“renting support money” from local government. What happens to
market price? What if support money is inverse proportional to WTP?

D’

p D S p D S
D’

p**
p**

p* p*

q q

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Comparative Analysis:
Perfect Competition vs. Ordinary Monopolist
Perfect Competition: (buyers and) sellers have no influence on
the price or quantity; so revenue is R=p∙q.
Ordinary Monopoly: seller can influence price by controlling
supply; so revenue is R=p(q)∙q.
p D S p D S’ S

p**
p* p*
R
R

q q
Which Equilibrium is better: for Consumer; for Producer; for Society
27/08/2019 ECON 20501: Microeconomic Analysis 3 ©Horst.Zank 8
Positive vs. Normative Economics
Positive: is descriptive. Take the approximation of real markets and
construct theories. Use them for comparative analyses: e.g., how
resources are allocated. Beyond description such analysis may also be
able to make predictions.
Normative: is judgemental. What allocation of resources is best for
society? What behaviour is best for consumers (smoking, health care)?
How do we measure welfare (inequality or poverty) in a society?
Should we care about the next generations and how do we measure
their welfare (climate change)? Often such theories involve personal
views on ethics, behavioural norms, moral or fairness.
Pareto improvement: occurs if one person’s welfare can be improved
without detriments to others. If not possible, we have Pareto Efficiency
Question: suppose we have downwards sloping demand and decide to
allocate units of a good randomly. Is this Pareto efficient?
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Historical view
Early views: “Theory of Value” of goods is not “Price” of goods.
Adam Smith: distinguished “Price=Value in Exchange” and
“Value=Value of Commodity” (so-called “water-diamond paradox”)
Labour Theory of Value: if a good is twice as costly to produce relative
to a second good, then it should cost twice as much. This is a “cardinal”
approach to value: one good’s price is a multiple of another good’s
price. Today: demand and supply determine “relative prices”.
Marginalist Revolution: Jevons, Marshall (partial equilibrium) and later
Walras (general equilibrium) built comprehensive theories of value
where the price of the “last incremental unit of a good” determined its
value. They moved to what is called an “ordinal” approach to value: all
market forces in all markets determine the “value” of a good. (this
includes consumers and producers)

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Historical view
Welfare Economics: always a central objective but could only be
addressed in simple “exchange economies” (Edgeworth); it lead to
efficiency notions of allocations through markets (Pareto).
Modern (Neo-classical Economics): started after 1944. Theories of
risk/uncertainty (von Neumann-Morgenstern; Savage) with cardinal
utility, could be distinguished from consumer theory with ordinal utility
(Debreu). Mathematical foundations combined with solid theories of
behaviour were key (Samuelson; Hicks; Arrow).
Time, Uncertainty, Information and Game Theory: is the latest
addition to advancements (Nash, Stiglitz, Selten, Roth, Hurwicz, Tirole).
Behavioural and Experimental Economics: based on observations,
questions the postulates of rational behaviour. Laboratory and field
experiments (Simon, Kahneman, Roth, Smith, Thaler).
Econometric/Empirical/Policy: with behavioural approach the most
active areas of current research (Tinbergen, Granger, Hansen, Sargent,
27/08/2019 ECON 20501: Microeconomic Analysis 3 ©Horst.Zank 11
Fama).
Essential Reading:

Nicholson and Snyder: Chapter 1.


Varian: Chapter 1.

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