ECS2601
ASSIGNMENT 1
SEMESTER 1
ANSWERS 2026
ECS2601 ASSIGNMENT 1 SEMESTER 1
ANSWERS 2026
, ECS2601 (Semester 1)
ASSIGNMENT 01
DUE DATE: 19 March 2026
UNIQUE NUMBER: 355622
1.1 How I understand the market mechanism (in my own words)
- Markets coordinate buyers and sellers through prices. Consumers decide what to
buy based on their preferences and their budget; producers decide what to supply
based on costs and prices they can obtain.
- Prices move to balance demand and supply. If there is excess demand, prices rise;
if there is excess supply, prices fall. The price changes keep happening until the
market clears at an equilibrium price and quantity.
- At equilibrium, resources tend to be allocated to where they are valued most by
consumers, and firms produce where marginal cost equals price, leading to an
efficient (in the sense of market efficiency) allocation of resources.
- Prices also convey information and incentives. They signal which goods are
relatively scarce or abundant and encourage or discourage production and
consumption.
- Markets are not perfect: failures can occur due to externalities, information
problems, public goods, market power, etc. In those cases, policy or institutions may
be used to improve outcomes.
1.2 Differentiation (two concepts)
I’ll differentiate completeness vs transitivity.
- Completeness
- What it means: A consumer can compare any two bundles A and B and say
whether they prefer A to B, B to A, or are indifferent between them.
- Implication: For every pair of bundles, there is a way to rank them (A ≽ B or B ≽ A
or A ~ B).
- Why it matters: Without completeness, a consumer’s choices could be undefined
for some bundles.
- Transitivity
ASSIGNMENT 1
SEMESTER 1
ANSWERS 2026
ECS2601 ASSIGNMENT 1 SEMESTER 1
ANSWERS 2026
, ECS2601 (Semester 1)
ASSIGNMENT 01
DUE DATE: 19 March 2026
UNIQUE NUMBER: 355622
1.1 How I understand the market mechanism (in my own words)
- Markets coordinate buyers and sellers through prices. Consumers decide what to
buy based on their preferences and their budget; producers decide what to supply
based on costs and prices they can obtain.
- Prices move to balance demand and supply. If there is excess demand, prices rise;
if there is excess supply, prices fall. The price changes keep happening until the
market clears at an equilibrium price and quantity.
- At equilibrium, resources tend to be allocated to where they are valued most by
consumers, and firms produce where marginal cost equals price, leading to an
efficient (in the sense of market efficiency) allocation of resources.
- Prices also convey information and incentives. They signal which goods are
relatively scarce or abundant and encourage or discourage production and
consumption.
- Markets are not perfect: failures can occur due to externalities, information
problems, public goods, market power, etc. In those cases, policy or institutions may
be used to improve outcomes.
1.2 Differentiation (two concepts)
I’ll differentiate completeness vs transitivity.
- Completeness
- What it means: A consumer can compare any two bundles A and B and say
whether they prefer A to B, B to A, or are indifferent between them.
- Implication: For every pair of bundles, there is a way to rank them (A ≽ B or B ≽ A
or A ~ B).
- Why it matters: Without completeness, a consumer’s choices could be undefined
for some bundles.
- Transitivity
