1 / 22

Microeconomic Tools

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. Demand for Apples. Price.

carlo
Download Presentation

Microeconomic Tools

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Microeconomic Tools

  2. 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.

  3. Demand for Apples Price 10.00 7.50 5.00 2.50 100 200 300 400 500 Apples

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

  5. Demand for Apples Price 10.00 Demand with higher income 7.50 5.00 2.50 100 200 300 400 500 Apples

  6. Supply of Apples 10.00 7.50 5.00 2.50 100 200 300 400 500 Apples

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

  8. Supply of Apples 10.00 Poor weather 7.50 Improved technology 5.00 2.50 100 200 300 400 500 Apples

  9. Equilibrium of Demand and Supply Supply Demand 10.00 7.50 5.00 2.50 100 200 300 400 500 Apples

  10. Equilibrium of Demand and Supply Supply Demand 10.00 7.50 Total Revenue, Total Expenditures 5.00 2.50 100 200 300 400 500 Apples

  11. Equilibrium of Demand and Supply Shift in Demand Supply Demand 10.00 7.50 5.00 2.50 100 200 300 400 500 Apples

  12. Equilibrium of Demand and Supply Supply Shift in Supply Demand 10.00 7.50 5.00 2.50 100 200 300 400 500 Apples

  13. Equilibrium of Demand and Supply Shift in Demand Supply Shift in Supply Demand 10.00 7.50 5.00 2.50 100 200 300 400 500 Apples

  14. 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

  15. Indifference Curves 100 75 Health Club Visits 50 25 20 40 60 80 100 Pounds of Spam

  16. Indifference Curves 100 Higher level of utility 75 Health Club Visits 50 25 20 40 60 80 100 Pounds of Spam

  17. How much is bought? In a month Visits = $20/visit Spam = $10/pound Income = $1500 100 75 Health Club Visits 50 25 If price of Spam doubles? 20 40 60 80 100 Pounds of Spam

  18. Putting them together In a month Prescriptions = $20/visit Spam = $10/pound Income = $1500 100 75 Health Club Visits 50 25 20 40 60 80 100 Pounds of Spam

  19. Putting them together In a month Visits = $20/visit Spam = $10/pound Income = $1500 U1 100 U2 75 Health Club Visits 50 25 20 40 60 80 100 Pounds of Spam

  20. Putting them together In a month Visits = $15/visit Spam = $10/pound Income = $1500 100 U increases 75 Health Club Visits More visits 50 More Spam Why? 25 20 40 60 80 100 Pounds of Spam

  21. A close look at the tangency In a month Visits = $20/visit Spam = $10/pound Income = $1500 100 U2 75 Health Club Visits -phDv 50 +psDs -DU/Dv = - Mgl. utility of visits DU/Ds = Mgl. utility of Spam 25 20 40 60 80 100 Pounds of Spam

  22. A close look at the tangency In a month Visits = $20/visit Spam = $10/pound Income = $1500 -pvDv + psDs = 0 Dv/Ds = ps/pv 100 Now, for utility MUv/Mus = (DU/Dv)/(DU/Ds) U2 75 = Ds/Dv Health Club Visits ps/pv =Dv/Ds = MUs/Muv -phDv or 50 +psDs Muv /pv = MUs/ ps -DU/Dv = - Mgl. utility of visits DU/Ds = Mgl. utility of Spam 25 20 40 60 80 100 Pounds of Spam

More Related