中级微观-范课堂讲义and selling.pptxVIP

Chapter NineBuying and SellingBuying and SellingTrade involves exchange -- when something is bought something else must be sold.What will be bought? What will be sold?Who will be a buyer? Who will be a seller?Buying and SellingAnd how are es generated?How does the value of e depend upon commodity prices?How can we put all this together to explain better how price changes affect demands?EndowmentsThe list of resource units with which a consumer starts is his endowment.A consumer’s endowment will be denoted by the vector (omega).EndowmentsE.g.states that the consumer is endowed with 10 units of good 1 and 2 units of good 2.EndowmentsE.g.states that the consumer is endowed with 10 units of good 1 and 2 units of good 2.What is the endowment’s value?For which consumption bundles may it be exchanged?Endowmentsp1=2 and p2=3 so the value of the endowment isQ: For which consumption bundles may the endowment be exchanged?A: For any bundle costing no more than the endowment’s value.Budget Constraints RevisitedSo, given p1 and p2, the budget constraint for a consumer with an endowment isThe budget set is Budget Constraints Revisitedx2w2w1x1Budget Constraints Revisitedx2w2Budget setw1x1Budget Constraints Revisitedx2w2w1x1Budget Constraints Revisitedx2w2Budget setw1x1Budget Constraints RevisitedThe endowment point is always on the budget constraint.x2w2w1x1Budget Constraints RevisitedThe endowment point is always on the budget constraint.x2So price changes pivot theconstraint about the endowment point.w2w1x1Budget Constraints RevisitedThe constraintisThat is, the sum of the values of a consumer’s net demands is zero.Net DemandsSuppose and p1=2, p2=3. Then the constraint is If the consumer demands (x1*,x2*) = (7,4), then 3 good 1 units exchange for 2 good 2 units. Net demands are x1*- w1 = 7-10 = -3 andx2*- w2 = 4 - 2 = +2.Net Demandsp1=2, p2=3, x1*-w1 = -3 and x2*-w2 = +2