1- The Market

Question 1

what is an economic model>

Answer 1

an economic model is a hypothetical construct that represents a simplification of reality

Question 2

what are the advantages of economic modelling?

Answer 2

economic modelling allows us to focus on the essential features of the economic reality that are attempting to understand and eliminate irrelevent details

Question 3

what do we need to think about whne constructing an economic model>

Answer 3

what are the exact aspect we want to study, what are the essential variables that must be included, what causes what, what is the simplest model that is capabable of describing the economic situtation we are examining. what variables are exogenous and what variables and endogenous

Question 4

what is the optimisation principle?

Answer 4

people try to choose the best patterns of consumption that they can afford- aim to maximise utility

Question 5

what is the equillibrium priniciple?

Answer 5

prices adjust until the amount that people demand of something is equal to the amount that is supplied. at this point an equillibrium is reached

Question 6

what do the demand curve for the housing market look like?

Answer 6

the demand curve for the housing market is downward sloping. this is because if the price of a property falls, then the more of the property will be demanded

Question 7

what does the short term supply curve for the housing market look like?

Answer 7

the short term supply curve is a vertical line as building a house takes months to complete therefore the supply is unresponsive to a change in price in the short run

Question 8

what determines the renting price in the housing market?

Answer 8

the renting price is determined by the interesection of supply and demand curves.

Question 9

who will rent apartments in the housing market/

Answer 9

everybody who are willing to pay at the equillibrium price

Question 10

what is pareto efficiency?

Answer 10

the outcome is pareto efficient if there is no any other way to allocate goods such that some people are better off and nobody is hurt

Question 11

what determines the price in a competitive market equillibirium?

Answer 11

it is determined by the supply and demand law

Question 12

what determines the quantity in a competitive market equilliibrium?

Answer 12

it is determined by the supply and demand law

Question 13

is the competive market equillibirum pareto efficient?

Answer 13

yes

Question 14

how is the wealth distribution spread in a competive market equillbirum?

Answer 14

it is split between supply and demand sides

Question 15

how is the price determined in a monopolist allocating method?

Answer 15

comes from the profit maximisation problem

Question 16

how is the quanitity decided by a monopolist?

Answer 16

it comes from the profit maximisation problem

Question 17

is the monopolist pareto efficient?

Answer 17

they generally are not pareto efficient

Question 18

what is the wealth distribution like for a monopolist?

Answer 18

it is split between the supply side and demand side ( in comp. to the comp.eq-m)

Question 19

how is the price determined by a discrimnatory monopolist?

Answer 19

everybody pays his/her reservation price, the lowest price is interesection of supply and demand

Question 20

how is the quantity determined by a discriminatory monopolist?

Answer 20

it is determined by the intersection of the supply and demand curves

Question 21

how is the quantity determined during rent contril?

Answer 21

it is determined by the supply side

Question 22

is the discriminatory monopolist pareto efficient>

Answer 22

yes

Question 23

how is the wealth distribution in the discriminatory monopolist?

Answer 23

it goes to the supply side

Question 24

is the rent control pareto efficient?

Answer 24

it is not pareto efficeint

Question 25

how is the wealth distribution for the rent control allocating method?

Answer 25

it may be lower for both sides