Summary CORE Economy Chapter 8 - Supply and Demand in Competitive Markets

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.