1- The Market Flashcards
what is an economic model>
an economic model is a hypothetical construct that represents a simplification of reality
what are the advantages of economic modelling?
economic modelling allows us to focus on the essential features of the economic reality that are attempting to understand and eliminate irrelevent details
what do we need to think about whne constructing an economic model>
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
what is the optimisation principle?
people try to choose the best patterns of consumption that they can afford- aim to maximise utility
what is the equillibrium priniciple?
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
what do the demand curve for the housing market look like?
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
what does the short term supply curve for the housing market look like?
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
what determines the renting price in the housing market?
the renting price is determined by the interesection of supply and demand curves.
who will rent apartments in the housing market/
everybody who are willing to pay at the equillibrium price
what is pareto efficiency?
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
what determines the price in a competitive market equillibirium?
it is determined by the supply and demand law
what determines the quantity in a competitive market equilliibrium?
it is determined by the supply and demand law
is the competive market equillibirum pareto efficient?
yes
how is the wealth distribution spread in a competive market equillbirum?
it is split between supply and demand sides
how is the price determined in a monopolist allocating method?
comes from the profit maximisation problem
how is the quanitity decided by a monopolist?
it comes from the profit maximisation problem
is the monopolist pareto efficient?
they generally are not pareto efficient
what is the wealth distribution like for a monopolist?
it is split between the supply side and demand side ( in comp. to the comp.eq-m)
how is the price determined by a discrimnatory monopolist?
everybody pays his/her reservation price, the lowest price is interesection of supply and demand
how is the quantity determined by a discriminatory monopolist?
it is determined by the intersection of the supply and demand curves
how is the quantity determined during rent contril?
it is determined by the supply side
is the discriminatory monopolist pareto efficient>
yes
how is the wealth distribution in the discriminatory monopolist?
it goes to the supply side
is the rent control pareto efficient?
it is not pareto efficeint
how is the wealth distribution for the rent control allocating method?
it may be lower for both sides
