第1章讲义

Advanced Microeconomics I
Mao Yuan
[email protected]
2024 Fall
Syllabus
 Time: Week 3-18, Room 308, 6-8 classes(14:05-
16:30)
 Textbook: Varian, Intermediate Microeconomics: A

Modern Approach (7th Edition)
- Nicholson and Snyder, Microeconomic Theory: Basic Principles and Extensions
- MWG, Microeconomic Theory
 Evaluation: 20%HW+70%Final+10%Class
 Suggestion: do Problems in each Chapter

Chapter One
The Market
Contents
 Constructing a Model
 Optimization and Equilibrium
 An Example
Constructing a Model
 Economists use models to describe
economic activities
 While most economic models are

abstractions from reality, they
provide aid in understanding
economic behavior
 Economic models attempt to explain
simple relationships
– focus on the effects of only a few forces
at a time
– other variables are assumed to be
unchanged during the period of study
 Example of apartments market
– focus on the price of the inner-ring
apartments (endogenous variable)
– the price of the outer-ring is
exogeneous
– all apartments are identical in every
respect except for location
 Example of apartments market
– what determines the price?
– what determines who will live in the
inner-ring?
– how to measure the desirability of
different allocating mechanisms?
–…
 Economic model vs Econometric model
Economic model Econometric model
Show the relationship between Measure the value of parameters in
economic variables relationships
Mathematical models that ignore Statistical models
residual variables
Deterministic models Stochastic models
… …
 Consumer search literature

Optimization and Equilibrium
 The optimization principle: People
try to choose the best patterns of
consumption that they can afford
 The equilibrium principle: Prices

adjust until the amount that people
demand of something is equal to the
amount that is supplied
 Both firm and individual behavior will
be modeled using the optimization
principle
– consumers seek to maximize utility
– firms seek to maximize profits (or
minimize costs)
 The optimization principle generates
precise, solvable models
 How a market composed of
consumers and producers would
interact
– we model market interactions using the
equilibrium principle
The Demand Curve
 reservation price: a person’s
maximum willingness to pay for
something
– the price it means (s)he is indifferent
between living in the inner ring and the
outer ring
 demand curve: a curve that relates
the quantity demanded to price
The Demand Curve
The Supply Curve
 The supply of apartment is fixed in
the short run
Market Equilibrium
 equilibrium: no change in behavior
will be observed
Comparative Statics
 comparative statics: how the price
changes when various aspects of the
market change
Comparative Statics
 the supply of apartment is increased
Comparative Statics
 turn several of the apartments into
condominiums
Comparative Statics
 the effect of an apartment tax
– the supply remains unchanged in the
short run
Other Way to Allocate
Apartments
 the Discriminating Monopolist
– different people pay different prices for
apartments
– last person to rent an apartment pays
the price p*
– the monopolist knows each person’s
reservation price (big data…)
– what if renters were uninformed of the
price? (ref. Varian, AER 1980)
Apartments
 the Ordinary Monopolist
– the monopolist is forced to charge the
same price
– the monopolist’s revenue pD(p)
Apartments
 Rent Control
– the maximum rent pmax<p*
– excess demand: who will end up with
the apartment?
Which Way Is Best
 Owner of the apartments
– discriminating monopolists
 Renters
– worse off in the case of discriminating
monopolist
– rent control?
Pareto Efficiency
 Pareto improvement
– the way to make some people better off
without making anybody else worse off
 Pareto efficient
– no Pareto improvements are possible
 e.g., breakfast, apple and pear, sublease

Pareto Efficiency
 Pareto improvement
– assigned renters to the inner- and outer-
ring apartments
– allow them to trade
 Pareto efficient
– no voluntary trade
Comparing Ways to Allocate
Apartments
 Competitive market
– the people with the S highest
reservation prices rent S apartment
 Discriminating monopolist
– the one who is willing to pay more than
p* gets an apartment
Comparing Ways to Allocate
Apartments
 Ordinary monopolist
– Pareto improvement: rent the left
apartments
 Rent control
– Pareto improvement: trade between
renters
Equilibrium in the Long Run
 the supply can change in the long
run
– what determines the supply
– will a monopolist supply more or fewer
apartments than a competitive market
– the impact of rent control

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第1章讲义

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Advanced Microeconomics I

 Textbook: Varian, Intermediate Microeconomics: A

 Suggestion: do Problems in each Chapter

 While most economic models are

 Consumer search literature

 The equilibrium principle: Prices

 e.g., breakfast, apple and pear, sublease

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