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C R E D I T M A R K E T S MPA 612: Economy, Society, and Public - PowerPoint PPT Presentation

Jul 18, 2023 •118 likes •477 views

C R E D I T M A R K E T S MPA 612: Economy, Society, and Public Policy March 11, 2019 Fill out your reading report on Learning Suite P L A N F O R T O D A Y Money and time Barriers to smoothing Monopoly practice M O N E Y A N D T I M E

  1. C R E D I T M A R K E T S MPA 612: Economy, Society, and Public Policy March 11, 2019 Fill out your reading report on Learning Suite

  2. P L A N F O R T O D A Y Money and time Barriers to smoothing Monopoly practice

  4. M O N E Y A N D T I M E

  5. What is money? Something that stores value Something that can be converted into goods and services

  6. S T O C K S A N D F L O W S Wealth Stock Income Flow Depreciation Flow Consumption Flow

  8. U N E V E N F L O W S What should we do with money when flows aren’t steady? Consumption smoothing

  10. U N E V E N F L O W S What should we do with money when flows aren’t steady? Consumption smoothing Why do we like smooth flows?

  11. Hyperbolic discounting We prefer immediate payoffs more than future payoffs

  12. F I X I N G U N E V E N F L O W S Move future consumption to the present Credit; borrowing Move present consumption to the future Saving and investing; storing

  13. B O R R O W I N G

  14. B O R R O W I N G

  15. S A V I N G A N D L E N D I N G

  16. Do we save too little? Do we spend too little?

  17. B A R R I E R S TO S M O OT H I N G

  18. B A R R I E R S T O S M O O T H I N G Principal agent problems Institutional barriers

  19. A S Y M M E T R I C I N F O R M A T I O N Lenders face risk of non-repayment Adverse selection? Moral hazard? Equity Collateral

  20. W E A LT H B E G E T S W E A LT H Having wealth makes it easy to provide equity and collateral

  21. What happens if you don’t have enough wealth to provide equity or collateral? Credit rationing Credit-constrained Credit-excluded Lack of wealth begets lack of wealth

  22. But nope. Causal arrows are backwards

  26. Probability of reaching top 20% income if parents are in bottom 20%

  28. M O N O P O LY P R A C T I C E

  29. Firms should set MR to MC to maximize profit (π) Under perfect competition, MR is the preexisting price Market power lets firms use their own MR curve Monopolies will underproduce and overcharge

  31. T H I N G S Y O U N E E D T O F I N D Demand P = −0.25Q + 50 TR = (−0.25Q + 50)Q Total revenue (TR) TR = PQ TR = −0.25Q 2 + 50Q Marginal revenue (MR) TR = −0.5Q + 50 Total cost (TC) P = 0.1Q 2 + 3Q + 10 Marginal cost (MC) MC = 0.2Q + 3

  32. S P E C I A L P O I N T S Maximum revenue MR = 0 Social Q and P MC = Demand Maximum π MR = MC Max π for monopolist Q from max π; P from demand

  33. <latexit sha1_base64="xfgnSXQJ6YrTYIPXCZP/+XF4v5U=">ACNXicbZBNS8NAEIY3flu/qh69LJaCF0sqgnoQRC9ehApGC0pm82kLm42YXdSLCG/you/w1svHlS8+hfc1h7UdmDh5X1nmJ0nSKUw6LoDZ2Z2bn5hcWm5tLK6tr5R3ty6NUmOXg8kYluBsyAFAo8FCihmWpgcSDhLni4GOZ3PdBGJOoG+ym0Y9ZVIhKcobU65Su/xzSkRshE0VO670ea8dyvUh/hEXPK75nqAhWKhAzFRbF1DVgkNRdMoVt+aOik6K+lhUyLganfKLHyY8i0Ehl8yYVt1NsZ0zjYJLKEp+ZiBl/IF1oWlYjGYdj46u6BV64Q0SrR9CunI/T2Rs9iYfhzYzpjhvfmfDc1pWSvD6LidC5VmCIr/LIoySTGhQ4Y0FBo4yr4VjGth/zpEYcGhJV2yEOr/T54U3kHtpOZeH1bOzsc0lsgO2SV7pE6OyBm5JA3iEU6eyIC8kXfn2Xl1PpzPn9YZzyzTf6U8/UNMeqr2w=</latexit> <latexit sha1_base64="xfgnSXQJ6YrTYIPXCZP/+XF4v5U=">ACNXicbZBNS8NAEIY3flu/qh69LJaCF0sqgnoQRC9ehApGC0pm82kLm42YXdSLCG/you/w1svHlS8+hfc1h7UdmDh5X1nmJ0nSKUw6LoDZ2Z2bn5hcWm5tLK6tr5R3ty6NUmOXg8kYluBsyAFAo8FCihmWpgcSDhLni4GOZ3PdBGJOoG+ym0Y9ZVIhKcobU65Su/xzSkRshE0VO670ea8dyvUh/hEXPK75nqAhWKhAzFRbF1DVgkNRdMoVt+aOik6K+lhUyLganfKLHyY8i0Ehl8yYVt1NsZ0zjYJLKEp+ZiBl/IF1oWlYjGYdj46u6BV64Q0SrR9CunI/T2Rs9iYfhzYzpjhvfmfDc1pWSvD6LidC5VmCIr/LIoySTGhQ4Y0FBo4yr4VjGth/zpEYcGhJV2yEOr/T54U3kHtpOZeH1bOzsc0lsgO2SV7pE6OyBm5JA3iEU6eyIC8kXfn2Xl1PpzPn9YZzyzTf6U8/UNMeqr2w=</latexit> <latexit sha1_base64="xfgnSXQJ6YrTYIPXCZP/+XF4v5U=">ACNXicbZBNS8NAEIY3flu/qh69LJaCF0sqgnoQRC9ehApGC0pm82kLm42YXdSLCG/you/w1svHlS8+hfc1h7UdmDh5X1nmJ0nSKUw6LoDZ2Z2bn5hcWm5tLK6tr5R3ty6NUmOXg8kYluBsyAFAo8FCihmWpgcSDhLni4GOZ3PdBGJOoG+ym0Y9ZVIhKcobU65Su/xzSkRshE0VO670ea8dyvUh/hEXPK75nqAhWKhAzFRbF1DVgkNRdMoVt+aOik6K+lhUyLganfKLHyY8i0Ehl8yYVt1NsZ0zjYJLKEp+ZiBl/IF1oWlYjGYdj46u6BV64Q0SrR9CunI/T2Rs9iYfhzYzpjhvfmfDc1pWSvD6LidC5VmCIr/LIoySTGhQ4Y0FBo4yr4VjGth/zpEYcGhJV2yEOr/T54U3kHtpOZeH1bOzsc0lsgO2SV7pE6OyBm5JA3iEU6eyIC8kXfn2Xl1PpzPn9YZzyzTf6U8/UNMeqr2w=</latexit> <latexit sha1_base64="yI1u1ciet4n6Jzb8tEHjz/jSXQ=">ACJXicbVBNS8NAFNzU7/pV9ehlsQheLKkI6kEQ9eAxBWuFpTN9kWXbjZh90UoIb/Gi3/Fi4cqgif/its2gloHFoaZebx9EyRSGHTdD6c0Mzs3v7C4VF5eWV1br2xs3pg41RyaPJaxvg2YASkUNFGghNtEA4sCa2gfzHyWw+gjYjVNQ4S6ETsTolQcIZW6lZO/QemITFCxoqe0n3qh5rxzL8EiYw28m/m5dRHEYEpAl6eNfJyt1J1a+4YdJrUC1IlBbxuZej3Yp5GoJBLZky7ibYyZhGwSXkZT81kDeZ3fQtlQxu7GTjc/M6a5VejSMtX0K6Vj9OZGxyJhBFNhkxPDe/PVG4n9eO8XwuJMJlaQIik8WhamkGNRZ7QnNHCUA0sY18L+lfJ7ZmtA2+yohPrfk6dJ86B2UnMbh9Wz86KNRbJNdsgeqZMjckauiEeahJNH8kyG5NV5cl6cN+d9Ei05xcwW+QXn8wu/JaTv</latexit> <latexit sha1_base64="yI1u1ciet4n6Jzb8tEHjz/jSXQ=">ACJXicbVBNS8NAFNzU7/pV9ehlsQheLKkI6kEQ9eAxBWuFpTN9kWXbjZh90UoIb/Gi3/Fi4cqgif/its2gloHFoaZebx9EyRSGHTdD6c0Mzs3v7C4VF5eWV1br2xs3pg41RyaPJaxvg2YASkUNFGghNtEA4sCa2gfzHyWw+gjYjVNQ4S6ETsTolQcIZW6lZO/QemITFCxoqe0n3qh5rxzL8EiYw28m/m5dRHEYEpAl6eNfJyt1J1a+4YdJrUC1IlBbxuZej3Yp5GoJBLZky7ibYyZhGwSXkZT81kDeZ3fQtlQxu7GTjc/M6a5VejSMtX0K6Vj9OZGxyJhBFNhkxPDe/PVG4n9eO8XwuJMJlaQIik8WhamkGNRZ7QnNHCUA0sY18L+lfJ7ZmtA2+yohPrfk6dJ86B2UnMbh9Wz86KNRbJNdsgeqZMjckauiEeahJNH8kyG5NV5cl6cN+d9Ei05xcwW+QXn8wu/JaTv</latexit> <latexit sha1_base64="yI1u1ciet4n6Jzb8tEHjz/jSXQ=">ACJXicbVBNS8NAFNzU7/pV9ehlsQheLKkI6kEQ9eAxBWuFpTN9kWXbjZh90UoIb/Gi3/Fi4cqgif/its2gloHFoaZebx9EyRSGHTdD6c0Mzs3v7C4VF5eWV1br2xs3pg41RyaPJaxvg2YASkUNFGghNtEA4sCa2gfzHyWw+gjYjVNQ4S6ETsTolQcIZW6lZO/QemITFCxoqe0n3qh5rxzL8EiYw28m/m5dRHEYEpAl6eNfJyt1J1a+4YdJrUC1IlBbxuZej3Yp5GoJBLZky7ibYyZhGwSXkZT81kDeZ3fQtlQxu7GTjc/M6a5VejSMtX0K6Vj9OZGxyJhBFNhkxPDe/PVG4n9eO8XwuJMJlaQIik8WhamkGNRZ7QnNHCUA0sY18L+lfJ7ZmtA2+yohPrfk6dJ86B2UnMbh9Wz86KNRbJNdsgeqZMjckauiEeahJNH8kyG5NV5cl6cN+d9Ei05xcwW+QXn8wu/JaTv</latexit> E L A S T I C I T Y ε = − % ������ �� ������ ε = − ∆ Q ∆ P × P % ������ �� ����� Q Coefficient for P if demand curve is written as Q = a P + b

  34. <latexit sha1_base64="mU3xH3IDGHxJav9DncoY1o4Sy+Q=">ACNXicbVDLahsxFNUkaeu6jzjNshsR0xAoNRq3TUsgYJoujCBj8CHtdo5OtYWCMN0p0SM/insul/dNUskgJ2fYXKj8CSZwDEodzkW6J06VdMjYebC2vHo8ZPC0+Kz5y9ebpa2XrWdyayAljDK2OYO1BSQwslKjhOLfAkVtCJx0czv/MTrJNGN3GSQi/hJ1oOpeDopX7pe4RwivlXSLgeTHcPaJ0e0nfVBn1L9xmNouLCbxrkigrj8CbDKtWPjR9VnwtZY34z2i+VWYXNQVdJuCRlskS9X/odDYzIEtAoFHeuG7IUezm3KIWCaTHKHKRcjPkJdD3VPAHXy+dbT+kbrwzo0Fh/NK5ensi54lzkyT2yYTjyN3ZuJDXjfD4edeLnWaIWixeGiYKYqGziqkA2lBoJp4woWV/q9UjLjlAn3RV9CeH/lVdKuVsL3lbDxoVz7sqyjQF6THbJHQvKJ1Mg3UictIsgZ+UMuyd/gV3ARXAXi+hasJzZJncQ/PsPKSak2g=</latexit> ������ : P = − 2 Q + 60 ����� ���� : P = 0 . 25 Q 2 + 10 Q + 100 Max revenue Q and P Social Q and P Max π Q and P ϵ at P = 20 ϵ at P = 5 Producer/consumer surplus & DWL

  35. <latexit sha1_base64="QVKfqu4mWL+GXv9kndjd8CfK2A=">ACPXicbVBNSxBFOxRk5jNhxs95vJwiQRClpndSIgiPGQ4wq7Kuxslp7eN9rY0z10vwkuw/wxL/4Hb9685JAguXq19yOQqAUNRVU9Xr9KciUdheFVsLC49OTps+XntRcvX71eqb9ZPXCmsAJ7wihjxLuUEmNPZKk8Ci3yLNE4WFy+nXiH/5A6TRXRrnOMj4sZapFJy8NKx3Y8IzKvcw43pUbWxB7bhY5xaLsqoKtsV7MHaG1CHNdm0a4hrkAYR3/jYTPa/97ysfYkuxnCsN4Im+EU8JBEc9Jgc3SG9ct4ZESRoSahuHP9KMxpUHJLUisanHhMOfilB9j31PNM3SDcnp9Be+8MoLUWP80wVT9d6LkmXPjLPHJjNOJu+9NxMe8fkHpl0EpdV4QajFblBYKyMCkShJi4LU2BMurPR/BXHCfXPkC6/5EqL7Jz8kB61m1Pb9fWrs7M7rWGZv2Tp7zyL2me2wb6zDekywc3bNfrHfwUXwM7gJ/syiC8F8Zo39h+D2DuP2qNU=</latexit> ������ : P = − 1 3 Q + 25 ����� ���� : P = 0 . 1 Q 2 + 3 Q + 50 Max revenue Q and P Social Q and P Max π Q and P ϵ at P = 20 ϵ at P = 5 Producer/consumer surplus & DWL

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