文档介绍：Chapter One
The Market
Economic Modeling
What causes what in economic
systems?
At what level of detail shall we model
an economic phenomenon?
Which variables are determined
outside the model (exogenous) and
which are to be determined by the
model (endogenous)?
Modeling the Apartment Market
How are apartment rents determined?
Suppose
– apartments are close or distant, but
otherwise identical
– distant apartments rents are
exogenous and known
– many potential renters and landlords
Modeling the Apartment Market
Who will rent close apartments?
At what price?
Will the allocation of apartments be
desirable in any sense?
How can we construct an insightful
model to answer these questions?
Economic Modeling
Assumptions
Two basic postulates:
– Rational Choice: Each person tries
to choose the best alternative
available to him or her.
– Equilibrium: Market price adjusts
until quantity demanded equals
quantity supplied.
Modeling Apartment Demand
Demand: Suppose the most any one
person is willing to pay to rent a
close apartment is $500/month. Then
p = $500 ⇒ QD = 1.
Suppose the price has to drop to
$490 before a 2nd person would rent.
Then p = $490 ⇒ QD = 2.
Modeling Apartment Demand
The lower is the rental rate p, the
larger is the quantity of close
apartments demanded
p ↓⇒ QD ↑.
The quantity demanded vs. price
graph is the market demand curve
for close apartments.
Market Demand Curve for
Apartments
p
QD
Modeling Apartment Supply
Supply: It takes time to build more
close apartments so in this short-run
the quantity available is fixed (at say
100).