Microeconomics Corso E

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MicroeconomicsCorso E

• John Hey

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Chapter 16

• Empirical Analysis of Demand, Supply and
  Surpluses.
• Very important for those who want to be
  economists.
• Difficult because it requires some knowledge of
  econometrics.
• There will not be questions on this chapter in
  the exams.

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Chapter 16

• We estimate the demand for food in the U.K.
  using our theory.
• We estimate the supply of food in the U.K.
  using our theory.
• We investigate the effect of the imposition of a
  tax in food on the price of food, the quantity
  bought and sold and on the surpluses (see chapter
  27).

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Notation

• NFOD Nominal expenditure on FOoD spesa
  nominale in beni alimentari.
• RFOD Real expenditure on FOoD spesa reale in
  beni alimentari
• PFOD Price of FOoD prezzo dei beni alimentari
  NFOD/RFOD
• NALL Nominal expenditure on ALL commodities
  spesa nominale complessiva
• RALL Real expenditure on ALL commodities
  spesa reale complessiva
• PALL Price of all ALL commodities prezzo di
  tutti i beni NALL/RALL

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Chapter 16

• Demand
• CD q ay/p
• RFOD 0.146 NALL/PFOD u
• SG q s a (y ps p2s2 )/p
• RFOD 44491 0.065 NALL/PFOD - 23426 QFOD/PFOD
  u (without a correction for simultaneous bias)
• RFOD 41962 0.049 NALL/PFOD - 14210 QFOD/PFOD
  u (with the correction)

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Extra Notation

• Prices of the inputs....
• PMAF Price of materials and fuels.
• NLI Nominal Long term rate of Interest Price
  of capital.
• PUW (Price of) Unit Wages.

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Chapter 16

• Cobb Douglas cost function
• C(y) ky1/(ab) w1 a/(ab) w2b/(ab)
• Supply curve given by marginal costprice.
• Supply curve with Cobb Douglas technology
• y k p (ab)/(1-a-b) w1 -a/(1-a-b) w2
  -b/(1-a-b)
• log(y) constant (ab) log(p) - a log(w1) - b
  log(w2)/(1-a-b)
• log(RFOD) 11.98 0.348 log(PFOD) - 0.148 log
  (PMAF) - 0.0696 log(NLI) - 0.0786log(PUW)

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Chapter 16

• The values of the variabiles 1999
• NALL 564368 PALL 1.10043 PMAF 83.7
  NLI 4.7 PUW 115 QFOD 1.10621
• If we substitute these values in the demand and
  supplu curves we get
• RFOD 41962 0.049 NALL/PFOD - 14210 QFOD/PFOD
• log(RFOD) 11.98 0.348 log(PFOD) - 0.148 log
  (PMAF) - 0.0696 log(NLI) - 0.0786log(PUW)
• ...and hence the following graph

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The Prices

• Without the tax
• Price 1.076.
• With the tax
• Price paid by the buyers 1.160.
• Price received by the sellers 1.055.
• Note 1.055 10 1.160 the tax.
• The buyers pay 7.8 more.
• The sellers receive 2.0 less.

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Mistake in the text!

• "In corrispondenza del nuovo equilibrio i
  venditori ricevono un prezzo inferiore e pari a
  1.055 il nuovo prezzo di equilibrio pagato dai
  consumatori e 1.160(il 10 maggiore di quello
  pagato prima dellimposta). La differenza tra il
  prezzo vigente prima dellimposta e il nuovo
  livello di prezzo pagato dai consumatori(0.1055)
  per ogni unita di beni alimentari acquistata
  viene incamerata dal governo." (pagina 319)
• "The new equilibrium price that the sellers
  receive is the lower price - which is 1.055 - and
  the new equilibrium price paid by the buyers is
  the upper price - which is 1.160. This latter is
  10 more than the former. The government takes
  the difference  - 0.1055 - on each unit of the
  good sold."

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The losses of surpluses

• Buyers 4423m - assuming 55 million inhabitants
  - 80 per head.
• Sellers 1106m
• Total 5529m
• The government takes in taxes 5488m
• The net loss in surpluses as a result of the tax
  5529m - 5488m 41m

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Chapter 16

• Goodbye!

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