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Micro Markets: A Market Structure Approach to Microeconomic Analysis

ISBN: 978-0-470-60285-0
496 pages
March 2010
Micro Markets: A Market Structure Approach to Microeconomic Analysis (0470602856) cover image
A timely guide that bridges the gap between microeconomic theory and practice through real-world application in the marketplace

Understanding how microeconomics affects the marketplace is essential for any investment professional, however most books simply address microeconomics in its pure theory-based form. Micro Markets helps bridge the gap between theory and practice by defining microeconomics in terms of real-world, market applications.

This timely guide elucidates basic microeconomic concepts with an emphasis on applicability. It establishes a common application for all of the basic economic concepts that are reviewed, and provides in-depth insights into an industry that is of major economic importance in aggregate, and to most individuals.

  • Utilizes equity market realities to underscore the relevance of economic theory
  • Each chapter includes informative practice problems and power points
  • A companion Workbook, with practice problems and solutions, is also available

By taking microeconomic theory and making it applicable to today's marketplace, Micro Markets builds a much-needed bridge between theory and practice.

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Preface.

Overview of the Book.

Related Publications.

Acknowledgments.

CHAPTER 1: Introduction to Market-Driven Economics.

Theory and Reality.

Primary and SecondaryMarkets.

Frictionless versus Nonfrictionless Markets.

How Well Do Markets Function?

A Market Is an Ecology.

Basic Microeconomic Concepts.

Frictionless Markets, the Gulf Stream, and a Day at the Races.

Chapter Summary.

Questions to Think About.

TraderEx Simulation: Let’s Look at a Market.

CHAPTER 2: The Consumer Choice Model: What Would You Really Like to Do?

The Consumer Choice Model and the X,Y Trade-Off.

The Consumer Choice Model and the Current Consumption, Future Consumption Trade-Off.

The Consumer Choice Model and the Risk-Return Trade-Off.

Comparative Statics.

Chapter Summary.

Let’s Consider an Application: Philanthropy.

TraderEx Simulation: What Are Your Attitudes Toward Risk?

CHAPTER 3: Demand Meets Supply.

Should Have, Would Have, and Did: The Decisions of a Representative Consumer.

The Demand Curve for X.

The Sensitivity of the Demand for X to the Price of X, the Price of Y, and Income.

From Individual Demand Curves to Market Demand Curves.

The Demand to Hold Shares of a Risky Asset.

The Investor’s Demand Curve for the Risky Asset.

Equilibrium in the Market for X.

Equilibrium in the Market for Shares of the Risky Asset.

Market Equilibrium.

Stocks, Cakes, and Substitutability.

Chapter Summary.

Let’s Consider an Application: Bandwagon and Snob Effects.

TraderEx Simulation: Call Market Trading.

CHAPTER 4: Microeconomic Analysis Goes to Market.

Short-Run Demand and Supply for Product X.

Adjustment Costs.

Liquidity.

Market Structure.

The Gains from Trading.

Strategic Order Placement.

The Big Picture.

Chapter Summary.

Let’s Consider an Application: Why Bid-Ask Spreads Exist in Securities Markets.

TraderEx Simulation: What Are Your Attitudes Toward Trading Costs?

CHAPTER 5: Supply and the Costs of Production.

The Production Function for X.

Cost Curves.

Determining the Best Profit Output.

Supply.

Application to a Dealer Firm.

From General Principles to the Details of a Specific Market.

Chapter Summary.

Let’s Consider an Application: The Optimal Schooling Behavior of Fish.

TraderEx Simulation: What Is It Like to Be a Securities Dealer?

CHAPTER 6: Sources and Nature of Competition.

Perfect Competition.

Monopoly.

Imperfect Competition:Monopolistic Competition.

Imperfect Competition: Oligopoly.

How Competition Plays Out in the Equity Markets.

Importance of Price as a Competitive Variable.

Chapter Summary.

Let’s Consider an Application: Why Firms Extend Trade Credit.

TraderEx Simulation: Intermarket Competition in the Exchange Space.

CHAPTER 7: Market Efficiency.

Allocation Efficiency.

Market Failure.

Information and Expectations.

Info about Information.

Four Dimensions of Informational Efficiency.

A Test of Market Efficiency.

Price Discovery Efficiency.

The Big Picture on Financial Market Efficiency.

Markets at Risk: The Financial Turmoil of 2007–2009.

The Greater Generality of the Frictions Problem.

Chapter Summary.

Let's Consider an Application: How Are Equilibrium Prices Discovered in a Competitive Market?

TraderEx Simulation: Finding an Equilibrium Value.

CHAPTER 8: Public Policy and the Interplay between Competition, Technology, and Regulation.

Governance Structure and Self-Regulation.

Technology, Automation, and the NASDAQ Stock Market.

The Evolving Regulatory Focus.

Governmental Regulatory Intervention.

Regulation of the U.S. Equity Markets.

Caveats for Public Policy.

Chapter Summary.

Questions to Think About.

TraderEx Simulation: Economic Effects of an Order Protection Rule.

Glossary.

About the Author.

Index.

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ROBERT A. SCHWARTZ is Marvin M. Speiser Professor of Finance and University Distinguished Professor in the Zicklin School of Business, Baruch College, CUNY. He is the developer, with Bruce Weber and Gregory Sipress, of the trading and market structure simulation, TraderEx (www.etraderex.net). Professor Schwartz has served as a consultant to various market centers including Nasdaq and the New York and London Stock Exchanges, and in 2009, he was named the first recipient of the annual World Federation of Exchanges (WFE) Award for Excellence. He has published over sixty refereed journal articles and seventeen books, including The Equity Trader Course and Equity Markets in Action, both published by Wiley. Professor Schwartz received his PhD in economics from Columbia University.
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