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ECON1001 Lecture Notes - Lecture 5: Static Analysis, Demand Curve, Pareto Efficiency

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University of Sydney
Department
Economics
Course
ECON1001
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All

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Document Summary

If a market is not in equilibrium, there will be pressure on price and quantity to move towards the equilibrium price and equilibrium quantity. S = market supply, d = market demand. Therefore, the market equilibrium is at a: p* = market clearing price qs (p*) = qd (p*, q*= the quantity traded at equilibrium qs (p*) = qd (p*) In equilibrium, p = mc for each and every firm. In equilibrium, p = mb for each and every consumer. If the market price is above the equilibrium price, the quantity supplied exceeds the quantity demanded. If the market price is below the equilibrium price, the quantity demanded exceeds the quantity supplied. This will continue until the market reaches equilibrium. In equilibrium, there is no pressure on prices as mc = mb. Price and quantity in equilibrium are not going to change as far as there are no changes in.

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Related Questions

3. Demand, Supply, consumer surplus, and Market Equilibrium. The following relations describe monthly demand and supply conditions in the metropolitan area for recyclable aluminum
QD + 92 - 2Px (Demand)
QS = -16 + Px (Supply)
where Q is a quantity measured in pounds of scrap aluminum and P is the price in dollars.
Complete the following table:
A.
What is the condition for market equilibrium?
B
Calculate the market equilibrium price and equilibrium output?
C.
What is the inverse demand curve P = f (QD)?
D.
Compute the consumer surplus at the equilibrium price.
E.
What is the inverse supply curve P = f (Qs)?
F.
Compute the producer surplus at the equilibrium price.

1. Market equilibrium occurs when

a. demand equals supply

b. quantity demanded equals quantity supplied

c. The consumer expectations match the producer's expectations

d. Efficiency and equal distribution are achievedĀ 

Ā 

2. If a surplus exists in a market, then

a. Price is above market equilibrium and quantity demanded is less than quantity supplied

b. Price is below market equilibrium and quantity demanded is less than quantity supplied

c. Price is above market equilibrium and quantity demanded is greater than quantity supplied

d. Price is below market equilibrium and quantity demanded is greater than quantity supplied

Ā 

3. When the price falls below market equilibrium

a. A surplus occurs

b. A shortage occurs

c. There will be an increase in quantity supplied

d. There will be a leftward shift of the supply curve

Ā 

The daily demand for travel at a small regional airport is initially QD = 1000 - p; where quantity is in passengers and price is in dollars per passenger. There are initially 10 price-taking firms serving this market and each of them has the production function: q = sqrt (lk) where q is in passengers, and labor and capital are in some appropriately specified units. The price of a unit of labor is w = 100 per day; the price of a unit of capital is v = 100 per day, and this industry has constant costs. Each firm initially has a capital stock of k0 = 80. day; and this industry has constant costs. Each firm initially has a capital stock of k0 = 80.

(a) Derive the short-run cost function, SC(q), for each firm in the market.

(b) Derive the short-run market supply function, QS.

(c) Find the short-run competitive equilibrium price, p*, and quantity, Q*. How much labor, L*, does the industry employ at the competitive equilibrium?

(d) Derive the long-run cost function, C(q), of each firm in the industry.

(e) Describe the long-run market supply curve. Does the short-run competitive equilibrium at (Q*; p*) also correspond to a long-run competitive equilibrium? Explain why or why not.

Now, imagine that a catastrophic event causes the daily demand for air travel in this market to fall unexpectedly to ~QD = 750 - p Continue to assume that each of the 10 firms has a capital of k0 = 80 in the short run.

(f) Find the new short-run competitive equilibrium price, p**, and quantity, Q**, in this market. How much labor, L**, does the industry employ in the new short-run competitive equilibrium?

(g) What is the new long-run competitive equilibrium price, p***, and quantity, Q***? Describe what must happen as the industry moves from the short-run competitive equilibrium at (Q**; p**) to the long-run competitive equilibrium at (Q***; p***). How much labor L*** does the industry employ at the new long-run equilibrium?