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Tutorials

Each of the tutorials listed below contains my distillation of the important concepts and graphical models relevant to each section of the course.

Reservation Prices

A buyer's reservation price is the maximum price he or she is willing to pay for a quantity of a good. A seller's reservation price is the minimum price he or she is willing to accept in payment for a quantity of a good. This tutorial looks at how buyers and sellers, focusing only on their personal reservation prices, can, in the context of a market, produce an outcome that brings the most benefit to society.

Supply and Demand

This tutorial reviews how supply and demand interact to determine the market price and quantity of a good or service. It also reviews how changes in factors underlying demand and supply lead to changes in market prices and quantities. The impact of government-set price controls on a market is also examined.

Price Elasticity

This tutorial extends the discussion of supply and demand, exploring issues pertaining to a buyer's or seller's responsiveness to a change in price or income. Elasticity is the name given to a measure of this responsiveness.

Consumer Choice

This tutorial has three parts. The first part explores the nature of consumer preferences as modeled by indifference curves. The second part explores the constraint imposed on consumers by their income and the prices of the goods they buy. This constraint is modeled by a budget line. The third part explores how a commodity bundle is chosen by a consumer who seeks to maximize the satisfaction received from the bundle of goods given a budget constraint.

Consumer and Market Demand

In this tutorial you will vary the price of Food (keeping income and the price of clothing constant) and find how the consumer choice model can be used to uncover the consumer's demand curve for food. Then you will vary income (keeping prices constant) to see how that demand curve shifts. Starting with a single consumer's demand curve, we will see how the market demand is derived.

Production

In this tutorial we look at how a firm combines factor inputs to produce goods or services. In the first part, only one input is allowed to vary to increase production. In the second and third parts, more than one input is varied.

Costs

In this tutorial we combine information on a firm's production function with the prices of factor inputs to determine the firm's costs of production. With that information we can explore how a firm decides how to produce -- how many units of each input to employ. We define the optimal combination of factor inputs as the combination that produces a given level of output at a minimum cost.  

Firms with No Market Power

Now we turn to another fundamental problem faced by a firm; What quantity should be produced? In this tutorial we explore how a firm with no market power chooses the level of output that maximizes profit. We also explore how the output choices of an individual firm lead to a supply curve for the entire perfectly competitive market. In this Tutorial you also explore how changes in market demand and supply affect the firm in both the short run and the long run, under different assumptions about the cost structure of the industry.

Firms with Market Power

In the previous tutorial, the profit-maximizing firm took the market price as given in deciding how much to produce and offer for sale. In markets with one or even many (as opposed to thousands) of firms, each firm has more control over the price. As a result of this "price-setting power", the profit-maximizing price and output will differ from what would prevail in a perfectly competitive market.

Competitive Input Markets

This tutorial explores the model of a wage-taking firm in a perfectly competitive labor market. We explore how changes in product demand, worker productivity, and the number of product sellers, affects the wage rate set by the market, and the profit-maximizing number of workers hired by the firm and in the market.

Monopsonistic Input Markets

In labor markets with only one firm hiring labor, that firm has some control over the wage rate paid workers. As a result of this "wage-setting power", the profit-maximizing wage and number of workers hired will differ from what would prevail in a perfectly competitive labor market.