Date post: | 22-Dec-2015 |
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Supply and Demand
• In microeconomics, we typically have suppliers reacting positively to price, and demanders reacting negatively.
• The two of them combine to provide an equilibrium, that indicates the market quantity and the market price.
What affects supply?
• Technological change
• Input prices
• Prices of Production-Related Goods
• Size of the Industry
• Weather
Equilibrium of Demand and Supply
100 200 300 400 500
2.50
5.00
7.50
10.00
Apples
SupplyDemand
Total Revenue,Total Expenditures
Equilibrium of Demand and Supply
100 200 300 400 500
2.50
5.00
7.50
10.00
Apples
SupplyDemand
Shift in Demand
Equilibrium of Demand and Supply
100 200 300 400 500
2.50
5.00
7.50
10.00
Apples
SupplyDemand Shift in Supply
Equilibrium of Demand and Supply
100 200 300 400 500
2.50
5.00
7.50
10.00
Apples
SupplyDemand Shift in SupplyShift in Demand
Utility Analysis?
• In principles courses we often measure utility -- sometimes use “utils” ...
• which is dorky (most of the time).• For several analyses in health economics,
we’ll want to use more modern analysis …,• although for insurance, we’ll go back to
“utils” • Ordinal utility
Indifference Curves
Pounds of Spam20 40 60 80 100
Higher level of utility
Hea
lth
Clu
b V
isit
s
25
50
75
100
How much is bought?
Pounds of Spam20 40 60 80 100
In a monthVisits = $20/visitSpam = $10/poundIncome = $1500
If price of Spam doubles?
Hea
lth
Clu
b V
isit
s
25
50
75
100
Putting them together
Pounds of Spam20 40 60 80 100
In a monthPrescriptions = $20/visitSpam = $10/poundIncome = $1500
Hea
lth
Clu
b V
isit
s
25
50
75
100
Putting them together
Pounds of Spam20 40 60 80 100
In a monthVisits = $20/visitSpam = $10/poundIncome = $1500
U1
U2
Hea
lth
Clu
b V
isit
s
25
50
75
100
Putting them together
Pounds of Spam20 40 60 80 100
In a monthVisits = $15/visitSpam = $10/poundIncome = $1500
U increases
More visits
More Spam
Why?
Hea
lth
Clu
b V
isit
s
25
50
75
100
A close look at the tangency
Pounds of Spam20 40 60 80 100
In a monthVisits = $20/visitSpam = $10/poundIncome = $1500
U2
-U/v = - Mgl. utility of visits
U/s =Mgl. utilityof Spam
-phv
+pssHea
lth
Clu
b V
isit
s
25
50
75
100
A close look at the tangency
Pounds of Spam20 40 60 80 100
U2
-U/v = - Mgl. utility of visits
U/s =Mgl. utilityof Spam
-phv
+pss
-pvv + pss = 0
v/s = ps/pv
Now, for utility
MUv/Mus = (U/v)/(U/s)
= s/v
ps/pv = v/s = MUs/Muv
or
Muv /pv = MUs/ ps
In a monthVisits = $20/visitSpam = $10/poundIncome = $1500
Hea
lth
Clu
b V
isit
s
25
50
75
100