investmenttoolseconomicsmicroeconomicanalysis(编辑修改稿)

investmenttoolseconomicsmicroeconomicanalysis(编辑修改稿)内容摘要：

ely, voters must choose among candidates who represent a bundle of positions on issues. 6. Ine and power are distributed differently in the two sectors. Success in the market place depends on one’s ability to provide products at a reasonable price. d: Discuss the role of government in attempting to correct the shortings of the market. Recall that the invisible hand of market forces generally provides individuals with the incentive to work hard to create value. There are four important factors that can limit the ability of the invisible hand to do this, which creates a potential need for government productive action. Lack of petition. Competition is vital to the proper operation of the pricing mechanism. When there are only a few firms in the industry, the petition from new entrants can be restrained. Sellers may, thus, be able to rig the market in their favor. Externalities failure to recognize all costs and benefits. Externalities are the side effects, or spillover effects, of an action between two parties that influences the well being of other individuals. The presence of externalities means that decisionmakers do not have the proper cost and price information on which to make decisions. Public goods – difficult for the market to provide: Public goods are goods consumed by the public as a whole. Police protection and sponsored medical research are examples of public goods. Potential information problems: When individuals are unable to evaluate the quality of products properly, the makers of poor quality products thrive and the makers of high quality products have low or negative profits. For example, few individuals are capable of evaluating the safety features built into cars. : Demand and Consumer Choice, including addendum Consumer Choice and Indifference Curves a: Explain consumer choice in an economic framework. As consumption increases, the marginal utility (that is the benefit derived from consuming that next unit) decreases. For example, your twelfth consecutive beer does not taste nearly as good as your first beer. This is known as the Law of Diminishing Marginal Utility. The law of diminishing marginal utility helps determine the shape of an individual’s demand curve. The height of the demand curve at any point is the marginal benefit to the customer (the maximum price the consumer would pay for an additional unit). Marginal utility and consumer choice: Given a fixed ine and price schedule, consumers will maximize their satisfaction (total utility) by ensuring that the last dollar spent on each item yields an equal degree of marginal utility. Price change and consumer choice: 1. The substitution effect: If a good bees cheaper relative to other goods, you will consume more of that good and 2. The ine effect: As the price of a good drops, your real ine rises, you will consume more of that good (and other goods). Time cost and consumer choice: Time, like money, is scarce to the consumer. Thus, a lower time cost, like a lower money price, makes a product more attractive. b: Identify, describe, and calculate the determinants of price and ine elasticity of demand. Price elasticity of demand indicates the degree of consumer response to variation in price. It is determined by the % change in quantity demand divided by the % change in price. Example: If the price of product A is increased from $ per unit to $ per unit, the demand will decrease from million units to million units. What is the price elasticity of demand for product A? Is product A an elastic good? % change in quantity = [( )] / [( + ) / 2] = / = or % % change in price = [( )] / [( + ) / 2] = / = .095 = % Price elasticity of demand for product A = % / % = . Because the price elasticity of demand is below , product A is inelastic. Price elasticity of demand is determined by: 1. Availability of substitutes: Many substitutes indicate elastic demand. The most important determinant of the price elasticity of demand is the availability of substitutes. When good substitutes for a product are available, a price rise induces many consumers to switch to other products and 2. Share of budget spent on product: Goods that occupy a relatively small portion of your budget will tend to be price inelastic. Ine elasticity is the sensitivity of demand to change in consumer ine. It is determined by the % change in quantity demanded divided by the % change in ine. An inferior good has negative ine elasticity. As ine increases (decreases), quantity demanded decreases (increases). Inferior goods include such things as bus travel and margarine. The opposite type of good, a normal good, has positive ine elasticity meaning that, as ine increases (decreases), demand for the good increases (decreases). Normal goods include things like bread and tobacco. Generally, normal goods have low ine elasticities (absolute values between 0 and 1) are considered necessities. Normal goods with highine elasticities (absolute values greater than 1) are generally considered luxury goods. Example: Suppose that your ine has risen by $10,000 from a base rate of $50,000. During this period, your demand for bread has increased from 100 loaves per year to 110 loaves per year. Given this information, determine whether or not bread is a necessity or a luxury good. The percentage change in ine is (60,000 50,000) / 50,000 = 20%, while the percentage change in the quantity of bread demanded is (110 100) / 100 = 10%. Hence, the ine elasticity of bread is 10 / 20 = .50. This good is a necessity. c: Explain why the price elasticity of demand tends to increase in the long run. The effect of time on elasticity: In general, when the price of a product increases, consumers will reduce their consumption by a larger amount in the long run than in the short run. Thus, the demand for most products will be。