An online textbook with dynamic graphics for the introduction to economics

September 10, 2021

Tel. 0651-2012744, bauer@uni-trier.de

Despite the ongoing development of the project, errors cannot be completely avoided. For legal reasons I have to point out that no guarantee or warranty whatsoever is given for the content and use.

The following internet pages are the beginning of a long-term project. In this sense, they represent a publication. The use in teaching and instruction is explicitly permitted. I only ask for the adherence to the usual methods of citation.

The graphics are constructed as follows: All points marked by a cross can be moved with the mouse. Not filled circles on a line can be controlled via sliders. The graphic adapts automatically to the change of a point. Points represented by filled circles cannot be moved directly, but adapt to the changing graphic.

The names of variables and designations are not always consistent in the typically used literature. We therefore adapted common nomenclature from the standard literature.

Should you notice any mistakes (e.g. dead or incorrect links, spelling mistakes or inaccuracies in content), I would be very grateful for a remark. I also welcome constructive criticism regarding the presentation and practicability of the pages and the comprehensibility of the explanations. Finally, I am also grateful for suggestions to expand the project.

I would like to thank Horst Froeber and the company Macher Solutions for the creation of the web presence. The dynamic graphics are based on the free geometry software jsxgraph, which was developed at the Department of Mathematics and its Didactics by Prof. Baptist at the University of Bayreuth. I would like to thank especially the developers Apl. Prof. Dr. Alfred Wassermann, Dr. Matthias Ehmann and Dr. Carsten Miller for their support. I would also like to thank Michal Hoftich for help with the technical implementation with Latex and Mr. Janes Sass for numerous helpful comments and found mistakes. Special thanks go to Lexi Walter (LIRSWrite Publishing Services; editing and translation; Contact: lirs@disroot.org) for translating all the contents into English.

There are still some chapters and elements not translated, but we are working on it.

Start

I Markets

1 The demand curve

2 The consumer surplus

3 The supply

4 The producer surplus

5 Stability

5.1 Deviation of the price from equilibrium

5.2 The Cobweb theorem

5.3 Supply and demand shocks

6 Interventions in the domestic market

6.1 Taxes and subsidies

6.1.1 Tax collection

6.1.2 Tax revenue

6.1.3 The level of tax revenue: Laffer curve

6.1.4 Subsidies

6.1.5 Subsidies vs taxes

6.2 Price fixing

6.2.1 Festlegung eines Höchstpreises

6.2.2 Welfare effects of a maximum price

6.2.3 Fixing a minimum price

6.2.4 Welfare effects of a minimum price

7 Types of markets

7.1 Polypoly or perfect competition

7.2 Monopolies

7.2.1 Monopolies

7.2.2 Price discrimination in Monopolies

II Household Theory

8 Optimum choice of consumption: graphical solution

8.1 The options of the consumer

8.2 The budget line

8.3 Indifference curve

8.4 Budget optimum

8.5 Change of income

8.6 Inferior goods

8.7 Engel curves: normal vs. inferior goods

8.8 Price changes

8.9 Income- and substitution- effects

8.10 Giffen good

9 Optimal consumption choice: calculative solution: optimization with constraints

9.1 Lagrange

9.2 The Lagrange formalism

9.3 The Lagrange formalism for the example of the consumption problem

9.4 The Lagrange formalism for the example of a Cobb-Douglas utility function

9.5 The Lagrange formalism for the example of another utility function

9.6 Optimization under constraints with a function to be chosen freely

9.7 The dual problem

9.8 Boundary solutions

9.9 The derived demand: Engel curves and demand curve

III Production and Utility Functions

10 Basics: Homogeneous and homothetic functions

10.1 General information on the notation of functions

10.2 Homogeneous functions

10.3 Homogeneous functions of two variables

10.4 Important properties of homogeneous functions: The Euler theorem and the absence of profit for companies with linear economies of scale

10.5 Homothetic functions

11 Substitutionality of production factors

12 CES production function

12.1 Costs

13 Producer surplus and profit

14 Economies of scale

15 Elasticities

15.1 Elasticity of any function

15.2 Elasticities: Characteristics of the graphic illustration of price elasticity

15.3 Elasticities: short and long term

15.4 Elasticities of substitution

15.4.1 CES substitution elasticities

15.4.2 Elasticities of substitution: Cobb-Douglas

15.5 Network Externalities: Band wagon- and snob- effect

IV Cold Progression

16 Cold Progression: Introduction

17 The development of the nominal tax rates

17.1 Overview of the historical development

17.2 The effect of cold progression without tariff adjustment

17.3 The effect of cold progression with tariff adjustment

17.4 The effect of cold progression without a change in tariff with adjustable inflation rate

18 Tax revenues and alternative tariffs

18.1 Distribution of income and income tax development

18.2 Selecting a linear tax rate

19 Austria

19.1 Cold Progression: Austria

19.2 The development of nominal tax rates: Austria

19.2.1 Overview of the historical development: Austria

19.2.2 The effect of cold progression without tariff adjustment: Austria

19.2.3 The effect of cold progression with tariff adjustment: Austria

19.2.4 The effect of cold progression without a change in tariff with adjustable inflation rate: Austria

20 Switzerland

20.1 Cold Progression: Switzerland

20.2 The development of nominal tax rates: Switzerland

20.2.1 Overview of historical development: Switzerland

20.2.2 The effect of cold progression without tariff adjustment: Switzerland

20.2.3 The effect of cold progression with tariff adjustment: Switzerland

20.2.4 The effect of cold progression without tariff change with adjustable inflation rate: Switzerland

V Linear Regression for Dummies

21 Basic principles

21.1 Introduction

21.2 Estimations by yourself

22 Details

22.1 Least squares, residuals and the estimation criterion

22.2 Outliers, robustness and the influence of single points

22.3 Misspecification of the model

I Markets

1 The demand curve

2 The consumer surplus

3 The supply

4 The producer surplus

5 Stability

5.1 Deviation of the price from equilibrium

5.2 The Cobweb theorem

5.3 Supply and demand shocks

6 Interventions in the domestic market

6.1 Taxes and subsidies

6.1.1 Tax collection

6.1.2 Tax revenue

6.1.3 The level of tax revenue: Laffer curve

6.1.4 Subsidies

6.1.5 Subsidies vs taxes

6.2 Price fixing

6.2.1 Festlegung eines Höchstpreises

6.2.2 Welfare effects of a maximum price

6.2.3 Fixing a minimum price

6.2.4 Welfare effects of a minimum price

7 Types of markets

7.1 Polypoly or perfect competition

7.2 Monopolies

7.2.1 Monopolies

7.2.2 Price discrimination in Monopolies

II Household Theory

8 Optimum choice of consumption: graphical solution

8.1 The options of the consumer

8.2 The budget line

8.3 Indifference curve

8.4 Budget optimum

8.5 Change of income

8.6 Inferior goods

8.7 Engel curves: normal vs. inferior goods

8.8 Price changes

8.9 Income- and substitution- effects

8.10 Giffen good

9 Optimal consumption choice: calculative solution: optimization with constraints

9.1 Lagrange

9.2 The Lagrange formalism

9.3 The Lagrange formalism for the example of the consumption problem

9.4 The Lagrange formalism for the example of a Cobb-Douglas utility function

9.5 The Lagrange formalism for the example of another utility function

9.6 Optimization under constraints with a function to be chosen freely

9.7 The dual problem

9.8 Boundary solutions

9.9 The derived demand: Engel curves and demand curve

III Production and Utility Functions

10 Basics: Homogeneous and homothetic functions

10.1 General information on the notation of functions

10.2 Homogeneous functions

10.3 Homogeneous functions of two variables

10.4 Important properties of homogeneous functions: The Euler theorem and the absence of profit for companies with linear economies of scale

10.5 Homothetic functions

11 Substitutionality of production factors

12 CES production function

12.1 Costs

13 Producer surplus and profit

14 Economies of scale

15 Elasticities

15.1 Elasticity of any function

15.2 Elasticities: Characteristics of the graphic illustration of price elasticity

15.3 Elasticities: short and long term

15.4 Elasticities of substitution

15.4.1 CES substitution elasticities

15.4.2 Elasticities of substitution: Cobb-Douglas

15.5 Network Externalities: Band wagon- and snob- effect

IV Cold Progression

16 Cold Progression: Introduction

17 The development of the nominal tax rates

17.1 Overview of the historical development

17.2 The effect of cold progression without tariff adjustment

17.3 The effect of cold progression with tariff adjustment

17.4 The effect of cold progression without a change in tariff with adjustable inflation rate

18 Tax revenues and alternative tariffs

18.1 Distribution of income and income tax development

18.2 Selecting a linear tax rate

19 Austria

19.1 Cold Progression: Austria

19.2 The development of nominal tax rates: Austria

19.2.1 Overview of the historical development: Austria

19.2.2 The effect of cold progression without tariff adjustment: Austria

19.2.3 The effect of cold progression with tariff adjustment: Austria

19.2.4 The effect of cold progression without a change in tariff with adjustable inflation rate: Austria

20 Switzerland

20.1 Cold Progression: Switzerland

20.2 The development of nominal tax rates: Switzerland

20.2.1 Overview of historical development: Switzerland

20.2.2 The effect of cold progression without tariff adjustment: Switzerland

20.2.3 The effect of cold progression with tariff adjustment: Switzerland

20.2.4 The effect of cold progression without tariff change with adjustable inflation rate: Switzerland

V Linear Regression for Dummies

21 Basic principles

21.1 Introduction

21.2 Estimations by yourself

22 Details

22.1 Least squares, residuals and the estimation criterion

22.2 Outliers, robustness and the influence of single points

22.3 Misspecification of the model

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(c) by Christian Bauer

Prof. Dr. Christian Bauer

Chair of monetary economics

Trier University

D-54296 Trier

Tel.: +49 (0)651/201-2743

E-mail: Bauer@uni-trier.de

URL: https://www.cbauer.de