Such markets are competitive because buyers know that there are many sellers to choose from because there is no identical product differentiation. Price and quantity demanded are inversely related, other things being equal. Movement of the demand curve Determinant of price. The quantity demanded by buyers decreases when the unit price of a good increases (and vice versa), holding other factors constant.
Price & delivered quantity are positively related, all else being equal. Movement in supply curve Price determinant. Quantity demanded (supplied) represents the willingness and ability of buyers (sellers) to buy (sell) at each price. This creates excess demand @ old equilibrium price 𝐏 ∗. Competition from buyers will push the price up to a higher equilibrium price 𝐏**.
This creates excess supply at the old equilibrium price 𝐏 ∗. Excess supply will push the price down to a lower equilibrium price 𝐏**. Because Ching Consultants is advising the Premier on how to fund the proposed highway extension. It measures the responsiveness of the quantity demanded of one good to a change in the price of another good.
Subsidies
In April 2008, the Australian government increased the tax rate on pre-mixed alcopops by 70% to tackle binge drinking among teenagers. The effectiveness of tax policy depends on its effect on the quantity of pre-mixed beverages sold, which depends on (i) the size of the tax and (ii) the relative price elasticities of demand and supply. Price controls Used by government to correct market outcome considered unfair 1. Price floor Imposes minimum price 📢LETAK ATAS.
The Australian Organ Donor Registry is a list of registries that allow the use of organs and tissues after death for transplant purposes.
Quotas Impose maximum quantity traded Kinked supply curve
22 March: International trade Week 4B
Externalities
Occurs when a decision maker's action imposes costs on others that are not borne by the decision maker. Occurs when a decision maker's action produces benefits for others that are not received by the decision maker. Private market competitive market Demand Private marginal benefits (PMB) Supply Private marginal costs (PMC) Market equilibrium.
A paper mill (upstream) emits pollution into the river as part of the production process. The brewery (downstream) uses water from the river in production. If the two paper mills have different marginal costs for abatement, an equal abatement scheme may not be efficient. Set some initial allocation of pollution permits (say a 50/50 split) and allow the two factories to trade.
Because mills have different willingness to pay for each level of pollution, there is profit from trade. Society is better off as fewer resources are used to achieve the same total reduction in pollution.
Public goods (market failure) Consider 2 characteristics of a goo
Undertake public production of public good
Ownership assignment: Patent
Cost function = finds the cheapest way to produce a given amount of output given the prices of inputs For example. Companies are more successful when they can operate at lower costs without compromising other aspects of production, e.g. Time horizon = whether the company can adjust the level of inputs Short term Period in which there is at least 1 fixed input.
Long-term Period required for all variable inputs. Fixed costs Costs that do not vary with output level Variable costs Costs that vary with output level. VC = need more variable input to produce higher Q, therefore higher (variable) cost Bob's short run cost. Short-run and long-run costs will only coincide when it is efficient to use exactly 2 units of capital in the production function.
To answer these questions, it will be helpful to think not just about SRTC and LRTC, but also about a variety of opportunity cost measures by which the company can assess the company's position. Increase in short-run total cost to produce 1 additional unit of output Short-run average total cost. Car Wash Business Consider Two Car Washing Technologies Short-term Costs Method 1 Bucket and Hose.
SRATC is decreasing over output because o AFC(Q) is decreasing all the time o AVC(Q) is constant over long-run costs. Since costs vary across short-run methods of production, for a given level of output, firms must choose the cheapest method of production. The form of LRATC(Q) shows important information about the production technology. LRATC economies of scale fall over the production range.
Today we will think about how companies behave in the short and long term when prices change. The company's total revenue must at least cover the total opportunity cost, excluding sunk costs and MC reductions at minimum ATC. Even companies that prefer to close in the long term may “stay” in the short term, as many of their costs are lost.
Market outcomes (short run)
Firms that decide to close (i.e. no production) will suffer losses equal to his family cost. Firms can enter and exit freely in the long run Suppose firms earn positive profits in the short run. This process will continue until all firms make no profit in the long run Suppose firms earn negative profits in the short run.
Firm profits (long run)
Market outcomes (long run)
Constant cost industry
Increasing cost industry
Perfectly competitive markets sellers and buyers = price takers cannot influence prices Imperfectly competitive markets where firms may be able to influence prices. A firm's ability to raise prices above the level that would exist in a perfectly competitive market. The price (of all units) must be reduced to be able to sell an additional unit.
MR = additional revenue from the sale of additional units, after deducting the decrease in revenue from the sale of all previous units at a lower price. Because price and quantity supplied are both determined by the firm, we do not speak of the "supply curve" when analyzing the monopoly problem. Even though the monopolist's profit-maximizing choices are captured by consumers, Ed, the monopolist's goal is to maximize its surplus, not social surplus.
A monopolistic drug manufacturer understands that placing a drug on the PBS list will result in a large increase in sales (since doctors are more likely to prescribe drugs that are on the PBS list). Of course, if the drug is on the PBS, it will have to settle for a lower price and be regulated.
April 26: Perfectly competitive markets The firm: price discrimination
Game theory
May 08: Introduction to game theory
2 prisoners must confess/not confess to a crime. Game mechanism. they will be found guilty and sentenced to 10 years in prison. If both do not confess,. they will be charged with a lesser offense and face 3 years in prison. If one confesses and other player does not confess, confessor gets 1 year in prison. non-confessor gets 25 year sentences.
Each suspect wants to betray the other player because of the attractiveness of the reduced prison sentence). If player B (column) chose to confess, A chooses to confess (-10) If player B (column) chose not to confess, A chooses to confess (-1) Best response action = Player A chooses to confess. If player A (row) chose to confess, B chooses to confess (-10) If player A (row) chose not to confess, B chooses to confess (-1) Best response action = Player B chooses to confess.
Even when there are no strict/weak dominant strategies, a player could still have dominant strategies. A set of strategies such that, when all other players use these strategies, no player can get a higher payoff by choosing a different strategy. Even when 1 (or more) player does not have a dominant strategy, Nash equilibrium can still exist.
We can eliminate the server-dominated strategy "C", but this does not indicate a dominant strategy for either player, given the remaining possibilities. So {L, C} is a Nash equilibrium, so the predicted equilibrium How to use Nash equilibrium (NE) as a solution concept. The Normal Form approach has several issues: • Normal Form gives us no sense of time.
She could do better if she changed her strategy after P1's first choice and switched to T,V • Thus Nash Equilibrium V, {V, V}. We can call this type of equilibrium "untrustworthy" because the equilibrium is based on a strategy profile that the individual would like to change when they come to a future decision. A game that includes part of a longer game, starting from a non-initial node of the larger game.
Airbus first mover
Quantity competition (simultaneous game) Airbus vs. Boeing
Quantity competition (sequential game) Airbus vs. Boeing