Frank弗兰克-经济学原理-微观-第4版课件ch8.ppt

1、Chapter 8,The Invisible Hand in Action,Learning Objectives,Define and explain the differences between accounting and economic profit. Show how economic profit and economic loss affect the allocation of resources across industries. Explain the difference between economic profit and economic rent. Use

2、 the theory of the invisible hand to analyze events in everyday life. Understand and explain the relationship between a market equilibrium and a social optimum.,Markets Are Dynamic,Every time you see one of these signs, you see the market dynamics at work Store for Lease Going Out of Business Sale E

3、verything Must Go Now Open Close-Out Model Under New Management,The Invisible Hand,Individuals act in their own interests Aggregate outcome is collective well-being Profit motive Produces highly valued goods and services Allocates resources to their highest value use Jon Stewart does not wait tables

4、,Accounting Profit,Most common profit idea Accounting profit = total revenue explicit costs Explicit costs are payments firms make to purchase Resources (labor, land, etc.) and Products from other firms Easy to compute Easy to compare across firms,Economic Profit,Economic profit is the difference be

5、tween a firms total revenue and the sum of its explicit and implicit costs Also called excess profits Implicit costs are the opportunity cost of the resources supplied by the firms owners Normal profit is the difference between accounting profit and economic profit Normal profits keep the resources

6、in their current use,Three Kinds of Profit,Total Revenue,Accounting Profit,Normal Profit,Economic Profit,Total Revenue = Explicit Costs + Accounting Profit,EconomicProfit = Accounting Profit Normal Profit,Economic Profits Guide Decisions,Pudge Buffets decision: keep farming or quit? Quit farming and

7、 earn $11,000 per year working retail Explicit farm costs are $10,000 Total revenue is $22,000 Pudge should stick with farming If revenue fell below $21,000, Pudge should quit,Owned Inputs,Rent for the farm land is $6,000 of the $10,000 in explicit costs What changes if Pudge inherits the land? His

8、rent payments become an implicit cost Pudge should stick with farming,Two Functions of Price,Rationing function of price distributes scarce goods to the consumers who value them most highly Allocative function of price directs resources away from overcrowded markets to markets that are underserved I

9、nvisible Hand Theory is that actions of independent, self-interested buyers and sellers will often result in the most efficient allocation of resource Articulated by Adam Smith in eighteenth century,Response to Economic Profits,Markets with excess profits attract resources,Shrinking Economic Profits

10、,Supply increases,Market Equilibrium,Zero economic profits,Economic Losses,Resources leave,Typical Corn Farm,Corn Industry,Market Equilibrium,No economic losses,Constant-Cost Industry,In the long run, corn costs $1/bu regardless of the size of the industry,Features of the Invisible Hand,Benefits of

11、Invisible Hand,Marginal benefit of last buyer equals marginal cost of last unit produced,Price paid by buyers is no greater than cost to the seller,Two Markets Interacting,All markets are in equilibrium when Demand for haircuts decreases Demand for exercise increases Price of haircuts goes down; hai

12、r stylists have losses Price of aerobics classes go up; instructors have excess profits Eventually the long-run prices of haircuts and aerobics class return to long-run equilibrium,Short-Run Adjustments,Short-Run Adjustments,Free Entry and Exit,Barrier to entry: any force that prevents firms from en

13、tering a new industry Legal constraints Practical factors Free entry and exit is required for the Invisible Hand to work,Economic Rent,Economic profits tend toward zero, yet people get rich Economic rent is the portion of a payment to a factor of production that exceeds the owners reservation price

14、People who love their work Non-reproducible input The case of the talented chef Unique talent for cooking In equilibrium, pay the chef the increase in revenue from his talent,Invisible Hand in the Supermarket,No Cash on the Table Principle says short check-out lines get get longer quickly Informatio

15、n is freely available Start in the shortest line Observe the pace of all lines Missing price in your line Complaining customer next to you Decide whether to switch,Invisible Hand and Cost-Saving Innovations,Competitive firms are price takers Cost management required Innovation lowers cost for one fi

16、rm Profits increase by amount of cost savings Information is freely available Industry costs decrease Equilibrium price decreases by amount of costs savings No excess profits,Shipping Innovation,40 companies compete in trans-Atlantic shipping Cost per trip is $500,000 One firm innovates to save $20,

17、000 in fuel per trip Short-run economic profit Over time, competitors copy the innovation Industry costs decrease by $20,000 Equilibrium price decrease by $20,000 In the long run, no firm earns excess profits,Invisible Hand in a NYC Cab,New York regulates the number of cabs Issues a limited number o

18、f medallions Allows medallions to be bought and sold privately Unregulated market has 15,000 cabs and each costs$25,000 City issues 13,000 medallions Price of a cab $28,000 With restricted supply, price of a cab ride goes up Cabs make excess profits,13,SR,28,Value of a Taxi Medallion,Total costs of

19、operation are $40,000 per year plus cost of medallion Total revenue is $60,000 per year $20,000 per year implicit cost of medallion ownership Find the amount you would pay today to receive $20,000 per year forever Depends on the interest rate At 6% interest, the value of a medallion is $333,333 If t

20、he medallion sells for $333,333, there are no excess profits from operating a cab,Present Value,The Present Value (PV) of a perpetual annual payment (M) at a given interest rate (r) is the amount that would have to be deposited today at interest rate r to generate annual interest earnings of M,M = (

21、r) (PV) PV = M / r,Value of the Taxi Medallion,Invisible Hand On Airlines,In 1970s, Civil Aeronautics Board (CAB) set high fares on popular routes Airlines obligated to serve less profitable routes Regulated airfares caused non-price competition Frequency and times of flights Amenities Economic prof

22、its were zero Marginal cost of extras marginal benefits Unregulated airlines charged lower fares and offered less service,Invisible Hand and Irrigation Program,Textile workers and tenant farmers each earn $8,000 Government program doubles revenue Short-term economic profits Land rents increase as fa

23、rmers enter industry Program benefits only land owners in the long run,Invisible Hand and the Stock Market,Share of stock is ownership of firms current and future accounting profits Price of a share depends on the accounting profits and the interest rate If profits per share are $1,000 per year and

24、r = 5%, then the share is worth $20,000,Other Present Value Concepts,Time value of money means that a dollar today is equivalent to that dollar in a year PLUS the interest the dollar would have earned if it were invested,PV = M / (1 + r)T Where M is the future sum of money, r is the interest rate an

25、d T is the number of years before you receive amount M,Other Present Value Concepts,PV = M / (1 + r)T,Efficient Markets Hypothesis,Profits are not known for certain Estimated value of a share uses all available information New information, new value - quickly The efficient markets hypothesis says th

26、at current stock price reflects all relevant information about the current and future profits Your broker has a hot tip Careful!,Canadas Best Managed Companies,Award winners do not necessarily have higher stock returns Information is already in the stock price If well-managed companies have higher growth of profits . Thats in the price, too Competition for those managers pays them the profits from their talent No added accounting profits,Market Equilibrium and Big Payoffs,Equilibrium leaves no