pe 100
QD,QS
Comparative Statics （静态比较分析）
What
is exogenous in the model? – price of distant apartments – quantity of close apartments – incomes of potential renters. What happens if these exogenous variables change? Note： We are not analyzing the transition process or dynamic process.
Modeling Apartment Demand
The
lower is the rental rate p, the larger is the quantity of close apartments demanded p QD . The quantity demanded vs. price graph is the market demand curve for close apartments.
Comparative Statics
Suppose
the price of distant apartment rises. Demand for close apartments increases (rightward shift), causing A higher price for close apartments.
Competitive Market Equilibrium
p
People willing to pay pe for close apartments get close apartments. People not willing to pay pe for close apartments get distant apartments.
Two Very Common Modeling Assumptions
– Rational Choice (理性选择）: Each person tries to choose the best alternative available to him or her. – Equilibrium （均衡）: economic agents interact with each other, resulting in an equilibrium, in which each person reaches an optimal decision given others‟ decisions.
Modeling Apartment Demand
Demand:
Suppose the most any one person is willing to pay to rent a close apartment is $500/month. Then p = $500 QD = 1. Suppose the price has to drop to $490 before a 2nd person would rent. Then p = $490 QD = 2.

An Illustration: Modeling theApartment Market
Purpose:
How are apartment rents determined? Are rents “desirable”? Simplifying assumptions: – apartments are close or distant, but otherwise identical – distant apartments rents are exogenous (外生变量） and known – many potential renters and landlords
Chapter One
The Market --- Appreciating Economic Modeling
The Purpose of this Chapter
To
begin to understand the art of building an economic model To begin to understand three basic elements of modeling in economics: – Purpose – Simplification through assumptions – Value judgment
Market Demand Curve for Apartments
p
QD
Modeling Apartment Supply
Supply:
It takes time to build more close apartments so in this short-run the quantity available is fixed (at say 100).
Market Supply Curve for Apartments
p
100
QS
Competitive Market Equilibrium (竞争性市场均衡）
Quantity
demanded = quantity available price will neither rise nor fall so the market is at a competitive equilibrium.
The Purpose of an Economic Model
The purpose of an economic model is to help provide precise insights (精 确的洞察力）on a specific economic phenomenon. Thus: – Different phenomena needs different model; – Simplification by assumption is necessary