微观经济学一

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Incentives and Information (cont.)

When Property Rights Fail
In many cases property rights are not clearly defined. This causes
problems with the efficient allocation of resources.
Pursue what they see as their own self-interest. Weigh costs
and benefits as they see them. If benefits > costs, take the action. However, different people have different interests.
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Incentives and Information (cont.)

Property Rights
The right of the owner to use and sell his or her property. With well-defined property rights, access is excludable,
The government
established a licensing system, which created well-defined property rights.
The Basic Competitive Model (cont.)

Rational Consumers
Scarcity forces us to make choices. Economists assume individuals and firms make choices
rationally:
compared to the size of market. If firms charge a price higher than the market price, they lose all their customers. All firms in the industry charge the same price.

Incentives versus Equality
Well-defined property rights permit incentives to provide
rewards and costs. If rewards are tied to performance, then a problem arises when many people help to produce a good or service.

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The Basic Competitive Model
Rational consumers Profit-maximizing firms Competitive markets Government is ignored for now.

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Incentives and Information

Incቤተ መጻሕፍቲ ባይዱme
Income is an incentive for consumers, workers, investors,
and firms. Consumer or household income is personal income. Firm income is revenue, divided between costs and profit.
The basic competitive model is efficient. Scarce resources are not wasted. It is not possible to produce more of one good without producing less of another good. It is not possible to make one person better off without making someone else worse off. Known as Pareto efficiency.
competition. The model is tested by comparing its predictions with actual markets. Economists believe this model can provide answers to the four basic questions:
In the early days of radio broadcasting, many broadcasters used the
same frequency and jammed each other's broadcasts. Property rights were ill defined; anyone could infringe on others' uses of airwaves.
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The Basic Competitive Model (cont.)

The Basic Competitive Model as a Benchmark
Combines self-interested consumers, profit-maximizing firms, and
Since different
people perform differently. If this inequality is from luck, would another criterion of compensation do "better"? Some economists hold equality as a value in its own right.
rivalrous, and transferable. A combination of freedom and responsibility is crucial to markets.
Freedom: Individuals
and firms must be creative and free to try
Rationality applies to acquiring information to answer
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The Basic Competitive Model (cont.)

Competitive Markets
Many firms selling identical products to many consumers. Firms and consumers are price takers in competitive markets. Firms provide as much output as consumers will buy. Each firm can sell as much as it wants: the size of the firm is small

Agenda
The basic competitive model Incentives and Information: Prices, Property Rights, and Profits Rationing Opportunity sets and trade offs Costs
Government is not needed to answer these questions in the basic
competitive model.
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The Basic Competitive Model (cont.)

Efficiency in the Basic Competitive Model
Will the worker be productive? Will the investment
be profitable?
these questions. If the benefit of more information > the cost of acquiring the information, the information is acquired. 2013-7-20
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The Basic Competitive Model (cont.)

Information Costs
Individuals and firms often make decisions with little or no
information.
Is the car a lemon?
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new techniques. Responsibility: Individuals must reap the reward if successful or 12 suffer the losses if not.
Incentives and Information (cont.)

Performance-Based Compensation
Even if pay can be tied to performance, how does one
measure performance? If compensation is tied to performance, this leads to inequality.
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The Basic Competitive Model (cont.)

Profit-Maximizing Firms
For firms; rationality means maximizing profits. Profit = revenue costs. Revenue = pQ. Profit = pQ costs.
Who contributed
what? Who are the most productive employees; is the hot salesperson good or just lucky?
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Incentives and Information (cont.)
Week 1 (cont.)
Thinking like an economist
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Objectives
Describe the basic competitive model. Understand what factors determine economic incentives. Explain how scarcity and choice for rational consumers and firms in the basic competitive model yield efficient outcomes. Learn the important categories of cost used in economics. 2013-7-20 2
What is produced, and in what quantities? How are goods produced?
For whom are those goods produced?
Who decides the answers to the first three questions, and how?