Chapter 1: Market

  • Vocabs

    • Exogenous:

      • outside control

    • Reservation Price:

      • the ceiling price that a person is willing to pay for smth

    • Pareto Efficiency:

      • An allocation is Pareto Efficient if no other allocation makes someone better off without making someone worse off

      • Competitive equalibrium (original equlibrium) is Pareto efficient

    • Horizontal interception (p, q):

      • demand when the price is min

    • Vertical interception (p, q):

      • demand when the price is max

    • Chokepoint:

      • when demand dropped to 0

    • Consumer Theory

      • Optimization for consumers: “Buy the best bundle of goods they can afford”

  • Simple model

    • A perfect model can’t exist

    • Assumptions

      • we make models based on some assumptions

      • Exp: the dupply for the housing market in penn state is competitive

  • Key Principles to predicting behavior

    • 1. Optimization

      • People do what is best for them

    • 2. Equalibrium

      • no incetive to change given the consistency of existing actions

  • MATH

    • Demand function: q=D(p)

    • Supply function: q= S(p)


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  • Price ceiling


  • Example

    • S(p) = 1000

      • Fixed Supply of 1000 apts

      • p = price

    • D(p) = 6000 - 10p

    • Horizontal interception = (0, 6000)

    • Vertical Interception (6000, 0)

    • q = 1000

    • p = 0.1a-100

    • p′a\frac{p^{\prime}}{a} = 0.1

      • indeed an increases in a increases equalibrium price p