Summary EKN244 - Supply and Demand

Supply and demand; price taking
and competitive markets

,Introduction



Context for this unit :



firms with market power can set their own price . what the market was in unit


Market outcomes NOT Pareto-efficient
are
generally



In reality firms does their behaviour differ from price-
,
many are
TA & How


firms ?
setting
- Can competition improve market outcomes ?

This Unit


1) Model interactions firms and
between
price-taking customers

2) Explain what is meant by competitive equilibrium

3) Compare firms with and without market power

, Demand and Supply




Competitive markets & Has
many buyers and sellers

"No influence market
single buyer can price

↑ All participants are
price takers




Example 1 : Second-hand textbooks




(WTP (WTA)
Willingness to Pay Willingness to Accept

· Maximum price a buyer is prepared to ·
Minimum price a seller is
willing
pay for a
good to accept for a
good
·
Reflects now much the buyer ·

Reflects how much seller values

values the item the
good
·
Also referred to as the seller's

Demand curve reservation price

constructed by ranking buyers
·




from lowest WTP Supply Curve
to
highest




........
- - - - -




"
The 19th Seller has
Eg) 20th
person
is
willing to pay $10 Eg) a
willingness to


accept of $6

Demand curve slopes downward

Cas price decreases quan demanded
, Supply curve slopes upward
increases Las price increases , quan supplied increases