Chapter 7: The Analysis of Price Determination Gang Gong Copyright Notes: This electronic file is only used as a lecture notes for the student in this class. It is not allowed to be used for presentation anywhere else without the permission from the author

Introduction The objective of this chapter is to study how employment is determined in the labor market We are considering the labor market in which the following relation should always hold:

Introduction The aim of this chapter is to study how output is determined in Keynesian framework. The analysis in this chapter is often named multiplier analysis

What is economics? Normative Definition Economics is the science that studies how to efficiently allocate economic resources Positive definition economics is the science that studies how an economy operates or how economic variables are

1. Please express the model of natural rate of unemployment according to blanchards book and then give your comments 2. How can you explain the aggregate demand and aggregate supply curves. How they are different from the usual definition on demand and supply curves

Chapter 7 develops the concept of efficiency and explores why many tasks are best left up to the market It presents the concept of economic surplus in detail and looks at how unregulated markets can generate the largest possible economic surplus Chapter 7: Efficiency and Exchange

1. Which of the following explains why automobile engines are smaller in England than in the united states?

1. Price changes affect quantity demanded for two reasons: They attractiveness of substitute goods and they alter the real value of the consumers purchasing power. The second effect grows larger as the share of the consumers

Chapter 3 introduces markets and provides an overview of the supply and demand model. It begins by comparing central planning and the market as alternative methods of allocating resources Chapter 3-Supply and Demand: An Introduction Slide 3

1. The equilibrium price of a good is determined by the intersection of its supply and demand curves. We can know everything about a goods cost of production( that, is we can know its supply exactly) yet still not know where the demand curve will intersect the supply curve