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I  Markets
II  Household Theory
III  Production and Utility Functions
IV  Cold Progression
V  Linear Regression for Dummies

Dynamic economics
An online textbook with dynamic graphics for the introduction to economics

Prof. Dr. Christian Bauer

September 10, 2021
Chair of monetary economics (FB IV), Trier University, 54296 Trier
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.

Contents

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

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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