Minor - Week 4 Flashcards
Demand
The willingness and ability to buy quantity of a good given price and given time
- Qd= A-bP
- quanity
- Ability and willingness
- P and Q inversely related
Demand curve endogenous change
Has to do with in the formula;
- Price and quantity
- Moving up and down the curve
Demand curve exogenous change
Happens outside the formula; marketing, willing to pay more for the product
- Moves down or up, whole graph
- Positve (moves to right)
- negative (downwards or left)
Ex. Vaccination not effective; shifts down (price lower and quantity
Supply
the willingness and ability to sell quantity of a good given the price and time
- Positive slope (want so sell more)
- Qs= A +bP
- Directly related (generate surplus)
Supply curve endogenous change
Has to do with in the formula:
- Price and quantity
- Qs goes up, Ps goes up on supply side (not market)
Supply curve exogenous change
- Outside of the formula; resources for example during covid
Supply curve moves left or right
Positive shock; moves to the right (down); finding a goldmine, quantity higher and price lower
Negative shock; to the left (upwards), cost you more fot he product (price higher for same product), quantity lower, price higher
Steps to analyse exogenous shock
- Define market
- Demand or supply or both
- Positive or negative
- Why?
equilibrium
- high supply fall in price
- Low price fall in supply
- low supply higher price
- Higher price high supply
NCE and behavioral
- Expected utility vs. prospect theory (reference dependance)
- Discounted utility vs. hyperbolic discounting
Risk
refers to the uncertainty around a transaction
Risk types
Risk Neutral: Indifferent towards risk (payoff = expected value)
Risk Averse: Do not like risk; need compensation to take risk (payoff > expected value)
Risk Seeking: Enjoy risk; offer compensation to take risk (payoff < expected value)
There’s a 90 % chance you got 1000 and 10 % chance you get 0.
What is the expected value?
- Risk Neutral:
- Risk Averse:
- Risk Seeking:
- Risk neutral payoff is expected = 900
- Risk averse; payoff > 900
- Risk seeking; payoff< 900
Prospect theory to the rescue
People weight gains and losses differently.
* People weight probabilities differently.
* People weight magnitudes depending on a reference point.
Diminishing utility loss aversion
- Was lineair
- Needed to make it steeper
- Apply diminishing effect
PV
= FV/ (1+R)^t
- kan je nu omschrijven naar FV= pv *(1+R)^t
NCE: PV = δ0U0 + δ1U1 + +δ2U2 + … + δtUt
* BE: PV = δ0U0 + βδ1U1 + βδ2U2 + … + βδtUt
Difference is adding of present bias parameter
- Let op dat je wel de utility pakt bij de juiste tijd
Violations of discounting rates
- Quasi hyperbolic discounting
- Sequence effect (ascending order lower discounted)
- Magnitude effect (lagers outcomes discounted at lower rate than small outcomes)
Two nash Equilibriums
Stag hunt
- Both parties can gain from each other if they work togehter.
- Prisoners dilemma strong incentive to confess towards each other
crowed and uncrowded street and prisoners dilemma relevance
Crowded (busy street): When no one cooperates, it becomes crowded and chaotic. Own interest living
Uncrowded (quiet street): When everyone cooperates, it stays calm and well-organized.
Prisoner’s Dilemma: Not cooperating = bad outcome. Cooperating = best outcome.
ultimatum game and policy relevance - Smoking program
- Need to make an faire offer, otherwise the other party will not accept
- Fair offers increase participation
(assuming everyone takes anything above 0 euro), but it needs to be fair otherwise not accept
monotonic preferences
- Weakly; you need both to have more utility, both cars and gasoline
- Strong; one of the goods is sufficient; apples and organes
Three basic psychological needs Deci & ryan
- Compentence
- Relatedness / conectiveness
- Autonomy; self relient
Move from a motivation to extrinsic and intrinsic motivation
motivation types
- extrinsic; outside of yourself
- intrinsic; inside yourself motivation (pure interest, curiosity, challenge, enjoyment)
intrinsic motivation
Inherent tendency to seek out out of curiosity, to extend and excersise your capacities and explore and learn
- Personally rewarding
- vb; sports and hobbies
- hampered by external rewards
- has more benefits; better performance, more self esteem, more determination