C R E D I T M A R K E T S MPA 612: Economy, Society, and Public Policy March 11, 2019 Fill out your reading report on Learning Suite
P L A N F O R T O D A Y Money and time Barriers to smoothing Monopoly practice
M O N E Y A N D T I M E
What is money? Something that stores value Something that can be converted into goods and services
S T O C K S A N D F L O W S Wealth Stock Income Flow Depreciation Flow Consumption Flow
U N E V E N F L O W S What should we do with money when flows aren’t steady? Consumption smoothing
U N E V E N F L O W S What should we do with money when flows aren’t steady? Consumption smoothing Why do we like smooth flows?
Hyperbolic discounting We prefer immediate payoffs more than future payoffs
F I X I N G U N E V E N F L O W S Move future consumption to the present Credit; borrowing Move present consumption to the future Saving and investing; storing
B O R R O W I N G
B O R R O W I N G
S A V I N G A N D L E N D I N G
Do we save too little? Do we spend too little?
B A R R I E R S TO S M O OT H I N G
B A R R I E R S T O S M O O T H I N G Principal agent problems Institutional barriers
A S Y M M E T R I C I N F O R M A T I O N Lenders face risk of non-repayment Adverse selection? Moral hazard? Equity Collateral
W E A LT H B E G E T S W E A LT H Having wealth makes it easy to provide equity and collateral
What happens if you don’t have enough wealth to provide equity or collateral? Credit rationing Credit-constrained Credit-excluded Lack of wealth begets lack of wealth
But nope. Causal arrows are backwards
Probability of reaching top 20% income if parents are in bottom 20%
M O N O P O LY P R A C T I C E
Firms should set MR to MC to maximize profit (π) Under perfect competition, MR is the preexisting price Market power lets firms use their own MR curve Monopolies will underproduce and overcharge
T H I N G S Y O U N E E D T O F I N D Demand P = −0.25Q + 50 TR = (−0.25Q + 50)Q Total revenue (TR) TR = PQ TR = −0.25Q 2 + 50Q Marginal revenue (MR) TR = −0.5Q + 50 Total cost (TC) P = 0.1Q 2 + 3Q + 10 Marginal cost (MC) MC = 0.2Q + 3
S P E C I A L P O I N T S Maximum revenue MR = 0 Social Q and P MC = Demand Maximum π MR = MC Max π for monopolist Q from max π; P from demand
<latexit sha1_base64="xfgnSXQJ6YrTYIPXCZP/+XF4v5U=">ACNXicbZBNS8NAEIY3flu/qh69LJaCF0sqgnoQRC9ehApGC0pm82kLm42YXdSLCG/you/w1svHlS8+hfc1h7UdmDh5X1nmJ0nSKUw6LoDZ2Z2bn5hcWm5tLK6tr5R3ty6NUmOXg8kYluBsyAFAo8FCihmWpgcSDhLni4GOZ3PdBGJOoG+ym0Y9ZVIhKcobU65Su/xzSkRshE0VO670ea8dyvUh/hEXPK75nqAhWKhAzFRbF1DVgkNRdMoVt+aOik6K+lhUyLganfKLHyY8i0Ehl8yYVt1NsZ0zjYJLKEp+ZiBl/IF1oWlYjGYdj46u6BV64Q0SrR9CunI/T2Rs9iYfhzYzpjhvfmfDc1pWSvD6LidC5VmCIr/LIoySTGhQ4Y0FBo4yr4VjGth/zpEYcGhJV2yEOr/T54U3kHtpOZeH1bOzsc0lsgO2SV7pE6OyBm5JA3iEU6eyIC8kXfn2Xl1PpzPn9YZzyzTf6U8/UNMeqr2w=</latexit> <latexit sha1_base64="xfgnSXQJ6YrTYIPXCZP/+XF4v5U=">ACNXicbZBNS8NAEIY3flu/qh69LJaCF0sqgnoQRC9ehApGC0pm82kLm42YXdSLCG/you/w1svHlS8+hfc1h7UdmDh5X1nmJ0nSKUw6LoDZ2Z2bn5hcWm5tLK6tr5R3ty6NUmOXg8kYluBsyAFAo8FCihmWpgcSDhLni4GOZ3PdBGJOoG+ym0Y9ZVIhKcobU65Su/xzSkRshE0VO670ea8dyvUh/hEXPK75nqAhWKhAzFRbF1DVgkNRdMoVt+aOik6K+lhUyLganfKLHyY8i0Ehl8yYVt1NsZ0zjYJLKEp+ZiBl/IF1oWlYjGYdj46u6BV64Q0SrR9CunI/T2Rs9iYfhzYzpjhvfmfDc1pWSvD6LidC5VmCIr/LIoySTGhQ4Y0FBo4yr4VjGth/zpEYcGhJV2yEOr/T54U3kHtpOZeH1bOzsc0lsgO2SV7pE6OyBm5JA3iEU6eyIC8kXfn2Xl1PpzPn9YZzyzTf6U8/UNMeqr2w=</latexit> <latexit sha1_base64="xfgnSXQJ6YrTYIPXCZP/+XF4v5U=">ACNXicbZBNS8NAEIY3flu/qh69LJaCF0sqgnoQRC9ehApGC0pm82kLm42YXdSLCG/you/w1svHlS8+hfc1h7UdmDh5X1nmJ0nSKUw6LoDZ2Z2bn5hcWm5tLK6tr5R3ty6NUmOXg8kYluBsyAFAo8FCihmWpgcSDhLni4GOZ3PdBGJOoG+ym0Y9ZVIhKcobU65Su/xzSkRshE0VO670ea8dyvUh/hEXPK75nqAhWKhAzFRbF1DVgkNRdMoVt+aOik6K+lhUyLganfKLHyY8i0Ehl8yYVt1NsZ0zjYJLKEp+ZiBl/IF1oWlYjGYdj46u6BV64Q0SrR9CunI/T2Rs9iYfhzYzpjhvfmfDc1pWSvD6LidC5VmCIr/LIoySTGhQ4Y0FBo4yr4VjGth/zpEYcGhJV2yEOr/T54U3kHtpOZeH1bOzsc0lsgO2SV7pE6OyBm5JA3iEU6eyIC8kXfn2Xl1PpzPn9YZzyzTf6U8/UNMeqr2w=</latexit> <latexit sha1_base64="yI1u1ciet4n6Jzb8tEHjz/jSXQ=">ACJXicbVBNS8NAFNzU7/pV9ehlsQheLKkI6kEQ9eAxBWuFpTN9kWXbjZh90UoIb/Gi3/Fi4cqgif/its2gloHFoaZebx9EyRSGHTdD6c0Mzs3v7C4VF5eWV1br2xs3pg41RyaPJaxvg2YASkUNFGghNtEA4sCa2gfzHyWw+gjYjVNQ4S6ETsTolQcIZW6lZO/QemITFCxoqe0n3qh5rxzL8EiYw28m/m5dRHEYEpAl6eNfJyt1J1a+4YdJrUC1IlBbxuZej3Yp5GoJBLZky7ibYyZhGwSXkZT81kDeZ3fQtlQxu7GTjc/M6a5VejSMtX0K6Vj9OZGxyJhBFNhkxPDe/PVG4n9eO8XwuJMJlaQIik8WhamkGNRZ7QnNHCUA0sY18L+lfJ7ZmtA2+yohPrfk6dJ86B2UnMbh9Wz86KNRbJNdsgeqZMjckauiEeahJNH8kyG5NV5cl6cN+d9Ei05xcwW+QXn8wu/JaTv</latexit> <latexit sha1_base64="yI1u1ciet4n6Jzb8tEHjz/jSXQ=">ACJXicbVBNS8NAFNzU7/pV9ehlsQheLKkI6kEQ9eAxBWuFpTN9kWXbjZh90UoIb/Gi3/Fi4cqgif/its2gloHFoaZebx9EyRSGHTdD6c0Mzs3v7C4VF5eWV1br2xs3pg41RyaPJaxvg2YASkUNFGghNtEA4sCa2gfzHyWw+gjYjVNQ4S6ETsTolQcIZW6lZO/QemITFCxoqe0n3qh5rxzL8EiYw28m/m5dRHEYEpAl6eNfJyt1J1a+4YdJrUC1IlBbxuZej3Yp5GoJBLZky7ibYyZhGwSXkZT81kDeZ3fQtlQxu7GTjc/M6a5VejSMtX0K6Vj9OZGxyJhBFNhkxPDe/PVG4n9eO8XwuJMJlaQIik8WhamkGNRZ7QnNHCUA0sY18L+lfJ7ZmtA2+yohPrfk6dJ86B2UnMbh9Wz86KNRbJNdsgeqZMjckauiEeahJNH8kyG5NV5cl6cN+d9Ei05xcwW+QXn8wu/JaTv</latexit> <latexit sha1_base64="yI1u1ciet4n6Jzb8tEHjz/jSXQ=">ACJXicbVBNS8NAFNzU7/pV9ehlsQheLKkI6kEQ9eAxBWuFpTN9kWXbjZh90UoIb/Gi3/Fi4cqgif/its2gloHFoaZebx9EyRSGHTdD6c0Mzs3v7C4VF5eWV1br2xs3pg41RyaPJaxvg2YASkUNFGghNtEA4sCa2gfzHyWw+gjYjVNQ4S6ETsTolQcIZW6lZO/QemITFCxoqe0n3qh5rxzL8EiYw28m/m5dRHEYEpAl6eNfJyt1J1a+4YdJrUC1IlBbxuZej3Yp5GoJBLZky7ibYyZhGwSXkZT81kDeZ3fQtlQxu7GTjc/M6a5VejSMtX0K6Vj9OZGxyJhBFNhkxPDe/PVG4n9eO8XwuJMJlaQIik8WhamkGNRZ7QnNHCUA0sY18L+lfJ7ZmtA2+yohPrfk6dJ86B2UnMbh9Wz86KNRbJNdsgeqZMjckauiEeahJNH8kyG5NV5cl6cN+d9Ei05xcwW+QXn8wu/JaTv</latexit> E L A S T I C I T Y ε = − % ������ �� ������ ε = − ∆ Q ∆ P × P % ������ �� ����� Q Coefficient for P if demand curve is written as Q = a P + b
<latexit sha1_base64="mU3xH3IDGHxJav9DncoY1o4Sy+Q=">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</latexit> ������ : P = − 2 Q + 60 ����� ���� : P = 0 . 25 Q 2 + 10 Q + 100 Max revenue Q and P Social Q and P Max π Q and P ϵ at P = 20 ϵ at P = 5 Producer/consumer surplus & DWL
<latexit sha1_base64="QVKfqu4mWL+GXv9kndjd8CfK2A=">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</latexit> ������ : P = − 1 3 Q + 25 ����� ���� : P = 0 . 1 Q 2 + 3 Q + 50 Max revenue Q and P Social Q and P Max π Q and P ϵ at P = 20 ϵ at P = 5 Producer/consumer surplus & DWL
Recommend
More recommend
