Chapter 8
Price-taking frrm lack rarket power
Firms with rarket power can set their own price.
Market outcomes are generally not Pareto-efcient.
In reality, many frms are price-takers.
o How does their behaviour difer rom price-setng frmsr
o Can competton improve market outcomesr
The Special Came of Perfect Corpetton
Model o interactons between price-taking frms and customers
Per ect competton n special case o the model
Similarites and diference between price-taking and price-setng frms.
Derand curve
Derand curve n total quantty
that all consumers together
want to buy at any given price.
o Represents the
willingnemm to pay
(WTP) o buyers.
Supply curve
Supply curve n total quantty
that all frms together would
produce at any given price.
o Represents the
willingnemm to accept
(WTA) o sellers.
o Sellers may have
diferent remervaton
pricem.
Equilibriur price
At the equilibriur (rarket-clearing) price, supply equals demand.
Any other price is not a Namh equilibriur e.g.
i price was above P*, then there would be
excemm mupply, so some sellers could beneft
rom charging a lower price.
Assumes the products are identcal, so buyers
would be willing to buy rom any seller.
Price-taking frrm lack rarket power
Firms with rarket power can set their own price.
Market outcomes are generally not Pareto-efcient.
In reality, many frms are price-takers.
o How does their behaviour difer rom price-setng frmsr
o Can competton improve market outcomesr
The Special Came of Perfect Corpetton
Model o interactons between price-taking frms and customers
Per ect competton n special case o the model
Similarites and diference between price-taking and price-setng frms.
Derand curve
Derand curve n total quantty
that all consumers together
want to buy at any given price.
o Represents the
willingnemm to pay
(WTP) o buyers.
Supply curve
Supply curve n total quantty
that all frms together would
produce at any given price.
o Represents the
willingnemm to accept
(WTA) o sellers.
o Sellers may have
diferent remervaton
pricem.
Equilibriur price
At the equilibriur (rarket-clearing) price, supply equals demand.
Any other price is not a Namh equilibriur e.g.
i price was above P*, then there would be
excemm mupply, so some sellers could beneft
rom charging a lower price.
Assumes the products are identcal, so buyers
would be willing to buy rom any seller.
