Micro Economics
Dr. Kris De Jaegher
Extra Material complementing Pindyck and Rubinfeld Chapter 2
Learning Objectives
1. Understand the meaning of demand and supply curves, and see how equilibrium is established; 2. Understand the meaning of the slope and intercepts of demand (and supply) curves; 3. Understand the difference between movements along demand and supply curves, and shifts of demand and supply curves; 4. Understand the effect of price ceilings and price floors; 5. Understand the concept of price elasticity as a concept of price sensitivity (+ cross-price elasticity, income elasticity); 6. Understand the relation between revenue and price elasticity of demand; 7. Understand that it does not matter whether firms or consumers pay a per unit tax; 8. Understand the effect of elasticity of demand and supply on tax incidence; 9. Realise how supply and demand analysis can be applied to understand real-world phenomena.
Key Concepts
• Demand (PR pp.23-25, The Demand Curve) The demand for student rooms in the specified market is a schedule that gives you, for each possible price (monthly rent), the quantity demanded (the number of student rooms rented). Note that all other variables than monthly rent (such as the students’ income, their tastes for living in student rooms rather than with their parents, etc.) are considered constant (“other things equal”). For simplicity, let us assume that there are only six students considering renting rooms in the specified neighbourhood. Assume also that all student rooms in the neighbourhood are identical. Table 1 shows you, for each of these six students, the maximum monthly rent that they would be willing to pay for a student room. These are the students’ reservation prices. Note that, since at the reservation price, the student is indifferent between renting a room and not renting one, by the argument made in the lecture on “Thinking like an Economist”, the reservation price
Extra Material complementing Pindyck and Rubinfeld Chapter 2
Learning Objectives
1. Understand the meaning of demand and supply curves, and see how equilibrium is established; 2. Understand the meaning of the slope and intercepts of demand (and supply) curves; 3. Understand the difference between movements along demand and supply curves, and shifts of demand and supply curves; 4. Understand the effect of price ceilings and price floors; 5. Understand the concept of price elasticity as a concept of price sensitivity (+ cross-price elasticity, income elasticity); 6. Understand the relation between revenue and price elasticity of demand; 7. Understand that it does not matter whether firms or consumers pay a per unit tax; 8. Understand the effect of elasticity of demand and supply on tax incidence; 9. Realise how supply and demand analysis can be applied to understand real-world phenomena.
Key Concepts
• Demand (PR pp.23-25, The Demand Curve) The demand for student rooms in the specified market is a schedule that gives you, for each possible price (monthly rent), the quantity demanded (the number of student rooms rented). Note that all other variables than monthly rent (such as the students’ income, their tastes for living in student rooms rather than with their parents, etc.) are considered constant (“other things equal”). For simplicity, let us assume that there are only six students considering renting rooms in the specified neighbourhood. Assume also that all student rooms in the neighbourhood are identical. Table 1 shows you, for each of these six students, the maximum monthly rent that they would be willing to pay for a student room. These are the students’ reservation prices. Note that, since at the reservation price, the student is indifferent between renting a room and not renting one, by the argument made in the lecture on “Thinking like an Economist”, the reservation price