Intermediate Microeconomics
北京大学中国经济研究中心经济学双学位和辅修项目
2003年秋
Introduction
Contents
Instructor and TAs
Requirements
Course outline
An example,market for apartments
WHO AM I?
赵耀辉
Office,CCER 504
Phone,6275-4803
Email,yhzhao@ccer.pku.edu.cn
Office Hours,Thursdays 4:00-5:00pm
Teaching Assistants
史晓霞,shixiaoxia2002@sohu.com
李荻,lidileo@ccermail.net
黄国芳,luc_hpk@hotmail.com
Office Hours,Mondays,4:00-5:00
Textbook
Intermediate Microeconomics,
A Modern Approach (Sixth
Edition)
by Hal R,Varian
W,W,Norton,2003
Homework Policy
几乎每次课后都有作业
周二的作业在周六课前交
周六的作业在周二课前交
课后领回作业
不交或迟交作业将不得分
Exam Policy
两次期中，一次期末
注意考试日期
期中考试只考阶段内容
期末考试将考全部课程内容
除极特殊情况以外，缺考者得零分
No makeup exams
Grading
家庭作业,20％
期中考试（ 1）,20％
期中考试（ 2）,20％
期末考试,40％
The Theory of Economics does not
furnish a body of settled conclusions
immediately applicable to policy,It is
a method rather than a doctrine,an
apparatus of the mind,a technique of
thinking which helps its possessor to
draw correct conclusions
--- John Maynard Keynes
Is Economics Useful?
A thinking machine
Changes the way you view life and
understand problems
An all round major
Economics Graduates
Type of Employer Percent of Graduates
Traditional Business 23.3
Government 18.4
Financial Business 17.7
Graduate School 13.7
Consulting Services 4.4
Private/public School 3.9
Law Firm 3.5
Other 9.8
Jobs for Economists
Business economists
Government economists
Academic economists
Microeconomics
Theory
Applications
– Labor economics
– Economics of education
– Agricultural economics
– Industrial organizations
– Health economics
– ……
Course Outline
Consumer theory (1-15)
Producer theory (18-27)
Market equilibrium (16-17,30-32)
Special topics on equilibrium
Economic Modeling
What causes what in economic
systems?
At what level of detail shall we model
an economic phenomenon?
Which variables are determined
outside the model (exogenous) and
which are to be determined by the
model (endogenous)?
Modeling the Apartment Market
How are apartment rents determined?
Suppose
–apartments are close or distant,but
otherwise identical
–distant apartments rents are
exogenous and known
–many potential renters and landlords
Modeling the Apartment Market
Who will rent close apartments?
At what price?
Will the allocation of apartments be
desirable in any sense?
How can we construct an insightful
model to answer these questions?
Two Principles in Economics
Optimization,Each person tries to
choose the best alternative available
to him or her.
Equilibrium,Market price adjusts
until quantity demanded equals
quantity supplied.
Modeling Apartment Demand
Demand,Suppose the most any one
person is willing to pay to rent a
close apartment is $500/month,Then
p = $500? QD = 1.
Suppose the price has to drop to
$490 before a 2nd person would rent,
Then p = $490? QD = 2.
Modeling Apartment Demand
The lower is the rental rate p,the
larger is the quantity of close
apartments demanded
p QD?.
The quantity demanded vs,price
graph is the market demand curve
for close apartments.
Market Demand Curve for
Apartments
p
QD
Modeling Apartment Supply
Supply,It takes time to build more
close apartments so in this short-run
the quantity available is fixed (at say
100).
Market Supply Curve for
Apartments
p
QS100
Competitive Market Equilibrium
,low” rental price? quantity
demanded of close apartments
exceeds quantity available? price
will rise.
“high” rental price? quantity
demanded less than quantity
available? price will fall.
Competitive Market Equilibrium
Quantity demanded = quantity available
price will neither rise nor fall
so the market is at a competitive
equilibrium.
Competitive Market Equilibrium
p
QD,QS100
Competitive Market Equilibrium
p
QD,QS
pe
100
Competitive Market Equilibrium
p
QD,QS
pe
100
People willing to pay pe for
close apartments get close
apartments.
Competitive Market Equilibrium
p
QD,QS
pe
100
People willing to pay pe for
close apartments get close
apartments.
People not willing to pay
pe for close apartments
get distant apartments.
Competitive Market Equilibrium
Q,Who rents the close apartments?
A,Those most willing to pay.
Q,Who rents the distant
apartments?
A,Those least willing to pay.
So the competitive market allocation
is by,willingness-to-pay”.
Comparative Statics
What is exogenous in the model?
–price of distant apartments
–quantity of close apartments
–incomes of potential renters.
What happens if these exogenous
variables change?
Comparative Statics
Suppose the price of distant
apartment rises.
Demand for close apartments
increases (rightward shift),causing
a higher price for close apartments.
Market Equilibrium
p
QD,QS
pe
100
Market Equilibrium
p
QD,QS
pe
100
Higher demand
Market Equilibrium
p
QD,QS
pe
100
Higher demand causes higher
market price; same quantity
traded.
Comparative Statics
Suppose there were more close
apartments.
Supply is greater,so
the price for close apartments falls.
Market Equilibrium
p
QD,QS
pe
100
Market Equilibrium
p
QD,QS100
Higher supply
pe
Market Equilibrium
p
QD,QS
pe
100
Higher supply causes a
lower market price and a
larger quantity traded.
Comparative Statics
Suppose potential renters’ incomes
rise,increasing their willingness-to-
pay for close apartments.
Demand rises (upward shift),causing
higher price for close apartments.
Market Equilibrium
p
QD,QS
pe
100
Market Equilibrium
p
QD,QS
pe
100
Higher incomes cause
higher willingness-to-pay
Market Equilibrium
p
QD,QS
pe
100
Higher incomes cause
higher willingness-to-pay,
higher market price,and
the same quantity traded.
Taxation Policy Analysis
Local government taxes apartment
owners.
What happens to
–price
–quantity of close apartments
rented?
Is any of the tax,passed” to renters?
Taxation Policy Analysis
Market supply is unaffected.
Market demand is unaffected.
So the competitive market
equilibrium is unaffected by the tax.
Price and the quantity of close
apartments rented are not changed.
Landlords pay all of the tax.
Imperfectly Competitive Markets
Amongst many possibilities are:
–a monopolistic landlord
–a perfectly discriminatory
monopolistic landlord
–a competitive market subject to
rent control.
A Monopolistic Landlord
When the landlord sets a rental price
p he rents D(p) apartments.
Revenue = pD(p).
Revenue is low if p? 0
Revenue is low if p is so high that
D(p)? 0.
An intermediate value for p
maximizes revenue.
Monopolistic Market Equilibrium
p
QD
Low
price
Low price,high quantity
demanded,low revenue.
Monopolistic Market Equilibrium
p
QD
High
price
High price,low quantity
demanded,low revenue.
Monopolistic Market Equilibrium
p
QD
Middle
price
Middle price,medium quantity
demanded,larger revenue.
Monopolistic Market Equilibrium
p
QD,QS
Middle
price
Middle price,medium quantity
demanded,larger revenue.
Monopolist does not rent all the
close apartments.
100
Monopolistic Market Equilibrium
p
QD,QS
Middle
price
Middle price,medium quantity
demanded,larger revenue.
Monopolist does not rent all the
close apartments.
100
Vacant close apartments.
Perfectly Discriminatory
Monopolistic Landlord
Imagine the monopolist knew
everyone’s willingness-to-pay.
Charge $500 to the most willing-to-
pay,
charge $490 to the 2nd most willing-
to-pay,etc.
Discriminatory Monopolistic
Market Equilibrium
p
QD,QS100
p1 =$500
1
Discriminatory Monopolistic
Market Equilibrium
p
QD,QS100
p1 =$500
p2 =$490
12
Discriminatory Monopolistic
Market Equilibrium
p
QD,QS100
p1 =$500
p2 =$490
12
p3 =$475
3
Discriminatory Monopolistic
Market Equilibrium
p
QD,QS100
p1 =$500
p2 =$490
12
p3 =$475
3
Discriminatory Monopolistic
Market Equilibrium
p
QD,QS100
p1 =$500
p2 =$490
12
p3 =$475
3
pe
Discriminatory monopolist
charges the competitive market
price to the last renter,and
rents the competitive quantity
of close apartments.
Rent Control
Local government imposes a
maximum legal price,pmax < pe,the
competitive price.
Market Equilibrium
p
QD,QS
pe
100
Market Equilibrium
p
QD,QS
pe
100
pmax
Market Equilibrium
p
QD,QS
pe
100
pmax
Excess demand
Market Equilibrium
p
QD,QS
pe
100
pmax
Excess demand
The 100 close apartments are
no longer allocated by
willingness-to-pay (lottery,lines,
large families first?).
Which Market Outcomes Are
Desirable?
Which is better?
–Rent control
–Perfect competition
–Monopoly
–Discriminatory monopoly
Pareto Efficiency
Vilfredo Pareto; 1848-1923.
A Pareto outcome allows no,wasted
welfare”;
i.e,the only way one person’s
welfare can be improved is to lower
another person’s welfare,
Pareto Efficiency
Jill has an apartment; Jack does not.
Jill values the apartment at $200; Jack
would pay $400 for it.
Jill could sublet the apartment to Jack
for $300.
Both gain,so it was Pareto inefficient
for Jill to have the apartment.
Pareto Efficiency
A Pareto inefficient outcome means
there remain unrealized mutual
gains-to-trade.
Any market outcome that achieves
all possible gains-to-trade must be
Pareto efficient.
Pareto Efficiency
Competitive equilibrium:
–all close apartment renters value
them at the market price pe or more
–all others value close apartments
at less than pe
–so no mutually beneficial trades
remain
–so the outcome is Pareto efficient.
Pareto Efficiency
Discriminatory Monopoly:
–assignment of apartments is the
same as with the perfectly
competitive market
–so the discriminatory monopoly
outcome is also Pareto efficient.
Pareto Efficiency
Monopoly:
–not all apartments are occupied
–so a distant apartment renter could
be assigned a close apartment and
have higher welfare without
lowering anybody else’s welfare.
–so the monopoly outcome is
Pareto inefficient.
Pareto Efficiency
Rent Control:
–some close apartments are assigned
to renters valuing them at below the
competitive price pe
–some renters valuing a close
apartment above pe don’t get close
apartments
–Pareto inefficient outcome.
Harder Questions
Over time,will
–the supply of close apartments
increase?
–rent control decrease the supply of
apartments?
–a monopolist supply more
apartments than a competitive
rental market?