1. NJUIED Microeconomic Theory: Basic Principles and Extensions, 9e 吴福象 南京大学产业经济学系 信箱： fxiangwu@nju.edu.cn fxiangwu@nju.edu.cn 电话： 025-83621158( 办公室安中楼 1505)

2. NJUIED Intermediate Microeconomics2 基本教材  （ 1 ）沃尔特 · 尼科尔森《微观经济理论：基本原理与扩展》 [ 第 9 版 ] ， 北京大学出版社 2008 年 参考书目  （ 2 ） Microeconomics: Principles and Analysis 参见中微课件中 “ 参考 书 -” 系列  （ 3 ）阿维纳什.K. 迪克西特《经济理论中的最优化方法》，上海三联 书店  （ 4 ） Eugene Silberberg, Wing Suen 《经济学的结构：数量分析方法》 清华大学出版社 课件  商学院教师园地 → 吴福象： http://nubs.nju.cn/faculty.php/140 http://nubs.nju.cn/faculty.php/140 教材与课件

3. NJUIED Intermediate Microeconomics3 Grading:  30% Final Exam  30% Midterm Exam  20% Problem Set  20% Tests （上完一单元后随堂测试！） Problem Set ：  每章练习题偶数题！  补充的 “ 分析应用题 ” （见课件或课后练习） 考核方式与要求

4. NJUIED Intermediate Microeconomics4 Chapter 1 ECONOMIC MODELS Economists use models to describe economic activities While most economic models are abstractions from reality, they provide aid in understanding economic behavior  Theoretical Models More of the same, but with more math

5. NJUIED Intermediate Microeconomics5 Everyone maximizes something. – People maximize utility – whatever that is. – What do firms maximize? We will return to this shortly. This translates into an optimization problem. The key to economics is setting up the right problem. More of the same, but with more math

6. NJUIED Intermediate Microeconomics6 In general, a function is maximized by choosing the right variables, subject to some external parameters. Examples: – A worker chooses how many hours to work for a given wage. The hours is the variable, his wage is the parameter. – A firm decides how many cars to build, given the cost of labor and the car’s current market price. The number of cars is the variable, the cost of labor and the price are the parameters. More of the same, but with more math

7. NJUIED Intermediate Microeconomics7 Verification of Economic Models There are two general methods used to verify economic models:  direct approach establishes the validity of the model’s assumptions  indirect approach shows that the model correctly predicts real-world events

8. NJUIED Intermediate Microeconomics8 Verification of Economic Models We can use the profit-maximization model to examine these approaches  is the basic assumption valid? do firms really seek to maximize profits?  can the model predict the behavior of real-world firms?

9. NJUIED Intermediate Microeconomics9 Features of Economic Models Ceteris Paribus assumption Optimization assumption Distinction between positive and normative analysis

10. NJUIED Intermediate Microeconomics10 Ceteris Paribus Assumption Ceteris Paribus means “other things the same” Economic models attempt to explain simple relationships  focus on the effects of only a few forces at a time  other variables are assumed to be unchanged during the period of study

11. NJUIED Intermediate Microeconomics11 Optimization Assumptions Many economic models begin with the assumption that economic actors are rationally pursuing some goal  consumers seek to maximize their utility  firms seek to maximize profits (or minimize costs)  government regulators seek to maximize public welfare

12. NJUIED Intermediate Microeconomics12 Optimization Assumptions Optimization assumptions generate precise, solvable models Optimization models appear to be perform fairly well in explaining reality

13. NJUIED Intermediate Microeconomics13 Positive-Normative Distinction Positive economic theories seek to explain the economic phenomena that is observed Normative economic theories focus on what “should” be done

14. NJUIED Intermediate Microeconomics14 The Economic Theory of Value Early Economic Thought  “value” was considered to be synonymous with “importance”  since prices were determined by humans, it was possible for the price of an item to differ from its value  prices > value were judged to be “unjust”

15. NJUIED Intermediate Microeconomics15 The Economic Theory of Value The Founding of Modern Economics  the publication of Adam Smith’s The Wealth of Nations is considered the beginning of modern economics  distinguishing between “value” and “price” continued (illustrated by the diamond-water paradox) the value of an item meant its “value in use” the price of an item meant its “value in exchange”

16. NJUIED Intermediate Microeconomics16 The Economic Theory of Value Labor Theory of Exchange Value  the exchange values of goods are determined by what it costs to produce them these costs of production were primarily affected by labor costs therefore, the exchange values of goods were determined by the quantities of labor used to produce them  producing diamonds requires more labor than producing water

17. NJUIED Intermediate Microeconomics17 The Economic Theory of Value The Marginalist Revolution  the exchange value of an item is not determined by the total usefulness of the item, but rather the usefulness of the last unit consumed because water is plentiful, consuming an additional unit has a relatively low value to individuals

18. NJUIED Intermediate Microeconomics18 The Economic Theory of Value Marshallian Supply-Demand Synthesis  Alfred Marshall showed that supply and demand simultaneously operate to determine price  prices reflect both the marginal evaluation that consumers place on goods and the marginal costs of producing the goods water has a low marginal value and a low marginal cost of production  Low price diamonds have a high marginal value and a high marginal cost of production  High price

19. NJUIED Intermediate Microeconomics19 Supply-Demand Equilibrium Quantity per period Price P* Q* D The demand curve has a negative slope because the marginal value falls as quantity increases S The supply curve has a positive slope because marginal cost rises as quantity increases Equilibrium Q D = Q s

20. NJUIED Intermediate Microeconomics20 Supply-Demand Equilibrium q D = 1000 - 100p q S = -125 + 125p Equilibrium  q D = q S 1000 - 100p = -125 + 125p 225p = 1125 p* = 5 q* = 500

21. NJUIED Intermediate Microeconomics21 Supply-Demand Equilibrium A more general model is q D = a + bp q S = c + dp Equilibrium  q D = q S a + bp = c + dp there for

22. NJUIED Intermediate Microeconomics22 Supply-Demand Equilibrium A shift in demand will lead to a new equilibrium: Q’ D = 1450 - 100P Q’ D = 1450 - 100P = Q S = -125 + 125P 225P = 1575 P* = 7 Q* = 750

23. NJUIED Intermediate Microeconomics23 Supply-Demand Equilibrium S Quantity per period D Price 5 500 7 750 D’ An increase in demand... …leads to a rise in the equilibrium price and quantity.

24. NJUIED Intermediate Microeconomics24 General Equilibrium Models  the Marshallian model is a partial equilibrium model focuses only on one market at a time  to answer more general questions, we need a model of the entire economy need to include the interrelationships between markets and economic agents The Economic Theory of Value

25. NJUIED Intermediate Microeconomics25 The production possibilities frontier can be used as a basic building block for general equilibrium models A production possibilities frontier shows the combinations of two outputs that can be produced with an economy’s resources The Economic Theory of Value

26. NJUIED Intermediate Microeconomics26 The production possibility frontier reminds us that resources are scarce Scarcity means that we must make choices  each choice has opportunity costs  the opportunity costs depend on how much of each good is produced A Production Possibility Frontier

27. NJUIED Intermediate Microeconomics27 A Production Possibility Frontier Suppose that the production possibility frontier can be represented by To find the slope, we can solve for Y If we differentiate

28. NJUIED Intermediate Microeconomics28 A Production Possibility Frontier when x=5, y=13.2, the slope= -2(5)/13.2= -0.76 when x=10, y=5, the slope= -2(10)/5= -4 the slope rises as y rises

29. NJUIED Intermediate Microeconomics29 Welfare Economics  tools used in general equilibrium analysis have been used for normative analysis concerning the desirability of various economic outcomes economists Francis Edgeworth and Vilfredo Pareto helped to provide a precise definition of economic efficiency and demonstrated the conditions under which markets can attain that goal The Economic Theory of Value

30. NJUIED Intermediate Microeconomics30 Modern Tools ： Clarification of the basic behavioral assumptions about individual and firm behavior Creation of new tools to study markets Incorporation of uncertainty and imperfect information into economic models Increasing use of computers to analyze data Economics is the study of how scarce resources are allocated among alternative uses  economists use simple models to understand the process

31. NJUIED Intermediate Microeconomics31 Usually we will use the following definitions: We call the variables being chosen the endogenous variables (i.e. the variables inside the system). We call the parameters the exogenous variables (i.e. the variables outside the system). Endogenous and Exogenous Variables

32. NJUIED Intermediate Microeconomics32 Important Points to Note: The most commonly used economic model is the supply-demand model  shows how prices serve to balance production costs and the willingness of buyers to pay for these costs The supply-demand model is only a partial- equilibrium model  a general equilibrium model is needed to look at many markets together Testing the validity of a model is a difficult task  are the model’s assumptions reasonable?  does the model explain real-world events?