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Microeconomics Corso E. John Hey. Chapter 16. Empirical Analysis of Demand, Supply and Surpluses. Very important for those who want to be economists. Difficult because it requires some knowledge of econometrics. There will not be questions on this chapter in the exams. Chapter 16.

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Microeconomics corso e

MicroeconomicsCorso E

John Hey


Chapter 16
Chapter 16

  • Empirical Analysis of Demand, Supply and Surpluses.

  • Very important for those who want to be economists.

  • Difficult because it requires some knowledge of econometrics.

  • There will not be questions on this chapter in the exams.


Chapter 161
Chapter 16

  • We estimate the demand for food in the U.K. – using our theory.

  • We estimate the supply of food in the U.K. – using our theory.

  • We investigate the effect of the imposition of a tax in food on the price of food, the quantity bought and sold and on the surpluses (see chapter 27).


Notation
Notation

  • NFOD – Nominal expenditure on FOoD – spesa nominale in beni alimentari.

  • RFOD – Real expenditure on FOoD – spesa reale in beni alimentari

  • PFOD – Price of FOoD – prezzo dei beni alimentari = NFOD/RFOD

  • NALL – Nominal expenditure on ALL commodities – spesa nominale complessiva

  • RALL – Real expenditure on ALL commodities – spesa reale complessiva

  • PALL – Price of all ALL commodities – prezzo di tutti i beni = NALL/RALL


Chapter 162
Chapter 16

  • Demand

  • CD: q = ay/p

  • RFOD = 0.146 NALL/PFOD + u

  • SG: q = s + a (y – ps – p2s2 )/p

  • RFOD = 44491 + 0.065 NALL/PFOD - 23426 QFOD/PFOD + u (without a correction for simultaneous bias)

  • RFOD = 41962 + 0.049 NALL/PFOD - 14210 QFOD/PFOD + u (with the correction)


Extra notation
Extra Notation

  • Prices of the inputs....

  • PMAF – Price of materials and fuels.

  • NLI – Nominal Long term rate of Interest – Price of capital.

  • PUW – (Price of) Unit Wages.


Chapter 163
Chapter 16

  • Cobb Douglas cost function:

  • C(y) = ky1/(a+b) w1a/(a+b) w2b/(a+b)

  • Supply curve given by marginal cost=price.

  • Supply curve with Cobb Douglas technology

  • y = k p (a+b)/(1-a-b) w1-a/(1-a-b) w2-b/(1-a-b)

  • log(y) = constant + [(a+b) log(p) - a log(w1) - b log(w2)]/(1-a-b)

  • log(RFOD)= 11.98 + 0.348 log(PFOD) - 0.148 log (PMAF) - 0.0696 log(NLI) - 0.0786log(PUW)


Chapter 164
Chapter 16

  • The values of the variabiles 1999:

  • NALL = 564368 PALL = 1.10043 PMAF = 83.7 NLI = 4.7 PUW = 115 QFOD =1.10621

  • If we substitute these values in the demand and supplu curves we get…

  • RFOD = 41962 + 0.049 NALL/PFOD - 14210 QFOD/PFOD

  • log(RFOD)= 11.98 + 0.348 log(PFOD) - 0.148 log (PMAF) - 0.0696 log(NLI) - 0.0786log(PUW)

  • ...and hence the following graph:


The prices
The Prices

  • Without the tax:

  • Price = 1.076.

  • With the tax:

  • Price paid by the buyers = 1.160.

  • Price received by the sellers = 1.055.

  • Note: 1.055 + 10% = 1.160 – the tax.

  • The buyers pay 7.8% more.

  • The sellers receive 2.0% less.


Mistake in the text
Mistake in the text!

  • "In corrispondenza del nuovo equilibrio i venditori ricevono un prezzo inferiore e pari a 1.055; il nuovo prezzo di equilibrio pagato dai consumatori `e 1.160(il 10% maggiore di quello pagato prima dell’imposta). La differenza tra il prezzo vigente prima dell’imposta e il nuovo livello di prezzo pagato dai consumatori(0.1055) per ogni unit`a di beni alimentari acquistata viene incamerata dal governo." (pagina 319)

  • "The new equilibrium price that the sellers receive is the lower price - which is 1.055 - and the new equilibrium price paid by the buyers is the upper price - which is 1.160. This latter is 10% more than the former. The government takes the difference  - 0.1055 - on each unit of the good sold."


The losses of surpluses
The losses of surpluses

  • Buyers: £4423m - assuming 55 million inhabitants - £80 per head.

  • Sellers: £1106m

  • Total: £5529m

  • The government takes in taxes: £5488m

  • The net loss in surpluses as a result of the tax = £5529m - £5488m = £41m


Chapter 165
Chapter 16

  • Goodbye!