Micro Markets: A Market Structure Approach to Microeconomic Analysis (Wiley Finance)

467 Pages·2010·4.01 MB·English

by  Robert A. Schwartz

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Micro
Markets
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Micro
Markets
A Market Structure Approach to
Microeconomic Analysis
ROBERT A. SCHWARTZ
WITHMICHAEL G. CAREW AND
TATIANA MAKSIMENKO
John Wiley & Sons, Inc.
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Copyright # 2010 by Robert A. Schwartz. All rights reserved.
Published by JohnWiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Schwartz, Robert A. (Robert Alan), 1937-
Micro markets : a market structure approach to microeconomic analysis /
Robert A. Schwartz.
p. cm. – (Wiley finance series)
Includes index.
ISBN 978-0-470-44765-9 (cloth)
1. Stock exchanges. 2. Microeconomics. I. Title.
HG4551.S3934 2010
338.5–dc22 2009042659
Printed in the United States of America
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To my family, Jody, Emily, and Leigh
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Contents
Preface xi
Overview of the Book xiv
Related Publications xvii
Acknowledgments xix
CHAPTER 1
Introduction to Market-Driven Economics 1
Theory and Reality 2
Primary and Secondary Markets 3
Frictionless versus Nonfrictionless Markets 5
HowWell DoMarkets Function? 6
AMarket Is an Ecology 10
Basic Microeconomic Concepts 11
Frictionless Markets, the Gulf Stream, and a Day at the Races 20
Chapter Summary 21
Questions to Think About 23
TraderEx Simulation: Let’s Look at a Market 24
CHAPTER 2
The Consumer Choice Model: What Would You
Really Like to Do? 27
The Consumer Choice Model and the X,Y Trade-Off 28
The Consumer Choice Model and the Current Consumption,
Future Consumption Trade-Off 35
The Consumer Choice Model and the Risk-Return Trade-Off 43
Comparative Statics 64
Chapter Summary 73
Let’s Consider an Application: Philanthropy 76
vii
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viii CONTENTS
TraderEx Simulation: What Are Your Attitudes
Toward Risk? 78
CHAPTER 3
Demand Meets Supply 81
Should Have, Would Have, and Did: The Decisions of a
Representative Consumer 82
The Demand Curve for X 84
The Sensitivity of the Demand for X to the Price of X, the Price
of Y, and Income 86
From Individual Demand Curves to Market Demand Curves 96
The Demand to Hold Shares of a Risky Asset 99
The Investor’s Demand Curve for the Risky Asset 100
Equilibrium in the Market for X 102
Equilibrium in the Market for Shares of the Risky Asset 109
Market Equilibrium 112
Stocks, Cakes, and Substitutability 116
Chapter Summary 122
Let’s Consider an Application: Bandwagon and
Snob Effects 124
TraderEx Simulation: Call Market Trading 127
CHAPTER 4
Microeconomic Analysis Goes to Market 131
Short-Run Demand and Supply for Product X 133
Adjustment Costs 136
Liquidity 142
Market Structure 148
The Gains from Trading 164
Strategic Order Placement 170
The Big Picture 176
Chapter Summary 178
Let’s Consider an Application: Why Bid-Ask Spreads Exist in
Securities Markets 180
TraderEx Simulation: What Are Your Attitudes Toward
Trading Costs? 184
CHAPTER 5
Supply and the Costs of Production 187
The Production Function for X 188