Supply and Demand and Competitive Equilibrium (UNIT 7 & 8: Part 2)

Question 1

how is the supply curve drawn

Answer 1

Supply curve is drawn by lining sellers from those with the lowest reservation price (WTA) - lowest price at which someone is willing to sell a good

Question 2

why do shortages push price up?

Answer 2

Some buyers and sellers would agree to a price increase as scarcity pushes prices up

Question 3

why do surpluses bring prices down?

Answer 3

Some sellers and buyers
would both agree to price
discount to get rid of excess stock

Question 4

what drives the price
towards this competitive
equilibrium?

Answer 4

Competition (many buyers
and sellers selling identical
products) drives the price
towards this competitive
equilibrium (Also a Nash equilibrium because buyers and sellers have no incentive to change their positions)

Question 5

examples of perfectly competitive markets

Answer 5

Soybeans, copper, crude oil

Question 6

non price determinants of demand and non price determinants of supply

Answer 6

MISC
TWO TIPS

Question 7

Short term vs Long term equilibrium characteristics in perfect competition

Answer 7

In Short Term Equilibrium:
* 𝑄𝑑=𝑄𝑠
*P = MR = MC
*P < AC, P = AC or P > AC
*Firms can make economic
losses, break even or make
economic profit
*To reach equilibrium: price
adjusts, and individual firms adjust quantities produced

Whereas:
P=MR=MC=AC in LT equilibrium
Zero Economic profit