Micro Macro
- Industry-level - Country-level / aggregate
- Behaviours (allocate scare resources) of individuals - Whole economy
(households, firms, industries and government,
consumer/buyer, producer/seller)
- Price of products in a specific field - Price of all economy
Trade-off: choose A or B
Economic cost = accountant cost + opportunity cost (specialization)
Demand
Qd = a - bP
Qd = f(Price, Income, Price of related goods, expectations, tastes, Number of buyers)
Qd: behaviors of consumers
Price: affected by firms (price strategy)
Demand: relationship of Qd and Price (negative)
Expectation: think about the future and influence the price in present
Supply
Qs = a + bP → upward slopping curve
The law of supply states there is a direct (positive) relationship between price and quantity supplied
Quantity supplied is the amount of a good that sellers are willing and able to sell at a particular price
Supply: the amount of goods that sellers are able and willing to sell at different prices
Assumption: ceteris paribus
Qs = f(Price, Input prices, Technology, Expectations, Number of sellers, Taxation and subsidies)
P↑ → Qs↑
P↓ → Qs↓
S curve:
Tax policies in a particular industry (unit tax: t= $ per item/unit)
- imposed on seller => S
- imposed on buyer => D
EX: Tax on producers in the cigarette market => discourage the production and consumption
Price control:
- Price ceiling (max price)
- Price floor (min price)
Welfare analysis (at industry-level)
Total surplus TS:
+ Consumer surplus
+ Producer surplus