FreeEconHelp.com, Learning Economics... Solved!: equilibrium
Showing posts with label equilibrium. Show all posts
Showing posts with label equilibrium. Show all posts

9/24/11

Calculating equilibrium values for perfect competition, monopolies, and considering externalities. A rare earth product example, part 1

21:50
Calculating equilibrium values for perfect competition, monopolies, and considering externalities.  A rare earth product example, part 1
This post will be part of a series that considers three different market types, how to work the math to arrive at equilibrium values, and the associated consumer, producer, and economy wide surplus values associated with them.

Suppose that the market for “rare earths” given by the following Demand (inverse demand, marginal benefit or average revenue), supply (marginal costs), and marginal external social cost equations:


Market Quantity Demanded: QD = 120 – 2 P P = 60 – (1/2)QD
Marginal Revenue: MR = 60 - QD
Market Quantity Supplied: QS = (14/5) P P = (5/14) QS
Marginal external social cost: MESC = 15


A. Please graph the supply and demand and marginal external social costs on a single market graph, clearly identifying the quantity and market price associated the
Competitive Market Equilibrium, the Social Equilibrium (i.e. where net economic
surplus is maximized) and the Monopolistic Equilibrium..

B. (all prices are in $) Please fill out the following table (all prices are in $) . 


Equilibrium Q P PS CS Ext. Cost Eco. Surplus
Competitive





Social





Monopoly







9/22/11

How advertising affects supply and/or demand

09:22
How advertising affects supply and/or demand
Advertising spending is one of those ambiguous areas of supply and demand theory where we don't really know exactly what will happen but we can make a pretty good guess.  Our first guess would be that advertising affects consumer's tastes and preferences in a positive way, and that this will result in an increase in demand (the demand curve will shift up/right).  But advertising also costs firms money.  The distinction we have to keep in mind is whether or not advertising affects the marginal cost of production, or whether their advertising budget is fixed.  The difference between these two methods decides whether or not the supply curve will shift.

8/18/11

What is market equilibrium? How supply and demand interact to reach equilibrium price and quantity

20:11
What is market equilibrium? How supply and demand interact to reach equilibrium price and quantity
Finding market equilibrium is a pretty easy task once you understand what to look for.  The easiest way to find it is by looking for the point at which supply and demand cross, but it is a little difficult trying to understand why the market will converge to this point.  This post goes over that process, using the market for educational consultants as an example.

On the graph to the write we have our typical supply and demand graph, with S representing our upward sloping supply curve, and D representing our downward sloping demand curve.  We are now going to experiment with three different price levels and discuss what happens in the market when confronted with those three different prices.

6/24/11

Why are gas prices so high? The basics of Supply and Demand.

10:28
Why are gas prices so high?  The basics of Supply and Demand.
Everyone is feeling the pinch of high gas prices, but what is the cause?  People blame the middle east, claiming that OPEC (Organization of the Petroleum Exporting Countries) is limiting production.  Others blame the speculators, saying that they are investing money into oil that they never plan on buying which is increasing prices.  And finally, some blame developing countries like China, India and Brazil for increasing the demand of oil, making the price go up.  No one really knows what is causing the volatility of prices, but each of these examples do play a role.

Let’s begin with a simple supply and demand graph for the World market of gasoline (or oil).  On our Y axis we have the price of oil, and on the X axis, the quantity of oil.  We can set our equilibrium quantity will be set at around 7 million barrels/day and the equilibrium price at $100.