Economics 2010a Fa2003 Edward L. Glaeser Lecture 10
Economics 2010a Fall 2003 Edward L. Glaeser Lecture 10
10. More on production a. Derived demand-Marshall's Laws b. Long Run/Short Run, LeChatelier, Dynamics C. Aggregating Supply d. Theory of the Firm, the Holdup problem Agency Issues f. Application The Coase Theorem
10. More on Production a. Derived Demand—Marshall’s Laws b. Long Run/Short Run, LeChatelier, Dynamics c. Aggregating Supply d. Theory of the Firm, the Holdup Problem e. Agency Issues f. Application: The Coase Theorem
Marshall-Hicks laws of derived demand (1) The demand for a good is more elastic the more readily substitutes can be obtained (2) The more important the good, the more elastic the derived demand(Hicks addition- if substitutes are readily available) 3)The demand for an input is higher the more elastic is the supply of other inputs (4)The more elastic the demand for the final good-the more elastic is the demand for the input
Marshall-Hicks laws of Derived Demand (1) The demand for a good is more elastic the more readily substitutes can be obtained. (2) The more important the good, the more elastic the derived demand (Hicks’ addition– if substitutes are readily available). (3) The demand for an input is higher, the more elastic is the supply of other inputs. (4) The more elastic the demand for the final good– the more elastic is the demand for the input
All of these statements are supposed to be about Some of these comparative statics we know what to do with: (1)and(2). To get (3 and(4), we need some new ingredients (1)The demand for a good is more elastic the more readily substitutes can be obtained In the limit, this is obvious-if there exists a perfect substitute, then the derived demand elasticity is infinite Start with the Foc for an input j Differentiation gives us:花角=?>两m
All of these statements are supposed to be about Wj Zj /Zj /Wj Some of these comparative statics we know what to do with: (1) and (2). To get (3) and (4), we need some new ingredients. (1) The demand for a good is more elastic the more readily substitutes can be obtained. In the limit, this is obvious– if there exists a perfect substitute, then the derived demand elasticity is infinite. Start with the FOC for an input j P /f /Zj = Wj. Differentiation gives us: /f /Zj /Zj /Wj = 1 P ? >i®j /f /Zi /Zi /Wj
Or using the first order condition and manipulating W/Z 2/W Unrigorously-just looking at the equation gives you the unimportance result (i.e, when z is small you expect this expression to be bigger) and the substitutes result (when the other goods are able to adjust a lot- you expect a bigger demand elasticity)
Or using the first order condition and manipulating: Wj Zj /Zj /Wj = 1 Zj ? > i®j WiZi WjZj Wj Zi /Zi /Wj Unrigorously– just looking at the equation gives you the unimportance result (i.e., when z is small you expect this expression to be bigger) and the substitutes result (when the other goods are able to adjust a lot– you expect a bigger demand elasticity)