2/8/2012 Micro

Marginal value: it is what one more unit of a good is worth to you in terms of other goods.

Marginal value= Marginal Utility/Marginal Utility of an additional dollar of income

Suppose that the marginal value of the fifth egg (per week) is $0.50 (per week). This does not mean that there is a particular egg that is worth $0.50; it means that the difference between having 5 eggs per week and having 4 is worth $0.50/week. 


The error of confusing absolute advantage ("I can do everything better than you can") with comparative advantage typically appears as the claim that because some other country has lower wages, higher productivity, lower taxes, or some other advantage, it can undersell our domestic manufacturers on everything, putting our producers and workers out of work. This is used as an argument for protective tariffs--taxes on imports designed to keep them from competing with domestically produced goods.


thinking in terms of money obscures what is really happening. Trade is ultimately goods for goods--although that may be less obvious when several countries are involved,Tariffs are indeed a way of protecting American workers--from other American workers.


There seems to be a widespread belief that if someone sells something to you for more than he could have--if, for example, he could make a profit selling it to you for $5 but charges $6--he is somehow mistreating you, "ripping you off" in current jargon. This is an oddly one-sided way of looking at such a situation.If you pay $6 for the good, it is presumably worth at least $6 to you.

In a bilateral monopoly there is both a monopoly (a single seller) and monopsony (a single buyer) in the same market.

In such, market price and output will be determined by forces like bargaining power of both buyer and seller. A bilateral monopoly model is often used in situations where the switching costs of both sides are prohibitively high.

Bilateral monopoly situations are commonly analyzed using the theory of Nash bargaining games.

An example of a bilateral monopoly would be when a labor union (a monopolist in the supply of labor) faces a single large employer in a factory town (a monopsonist).

Why trade deficit is not a problem?

Think about the capital inflow.

If America is a promising country, other countries' investors will be interested to invest in America, and thus they will have a demand for dollar. IN trade activities, when a country imports goods from another one, it will convert its domestic money into that country's and when exports, the situation is the opposite. In other words, for America, import means supply of dollars and exports means demand of dollars. So imports equals the sum of exports and foreign investment. When imports is larger than exports, trade deficit occurs. But is the problem of rate exchange rather than cost.

An efficient outcome is, by definition, one that cannot be improved by a bureaucrat-god.


 Some of you may respond that taking steak from a rich man who is willing to pay $4 for it and giving it to a poor man who is willing to pay only $3 is really an improvement, since something worth $3 to the poor man is more important than something worth $4 to the rich man. That is one of the objections to the Marshall criterion discussed in Chapter 15. What it is really saying is that we should maximize total utility rather than total value. But utility cannot be observed and value can.