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The equilibrium price, commonly called the "market price", is the price where economic forces such as supply and demand are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change, often described as the point at which quantity demanded and quantity supplied are equal (in a perfectly ...
In economics, a price support may be either a subsidy, a production quota, or a price floor, each with the intended effect of keeping the market price of a good higher than the competitive equilibrium level. In the case of a price control, a price support is the minimum legal price a seller may charge, typically placed above equilibrium. It is ...
That is, if we consider a sufficiently small change in some exogenous parameter, we can calculate how each endogenous variable changes using only the first derivatives of the terms that appear in the equilibrium equations. For example, suppose the equilibrium value of some endogenous variable is determined by the following equation:
The original equilibrium price is $3.00 and the equilibrium quantity is 100. The government then levies a tax of $0.50 on the sellers. This leads to a new supply curve which is shifted upward by $0.50 compared to the original supply curve. The new equilibrium price will sit between $3.00 and $3.50 and the equilibrium quantity will decrease.
A government-set minimum wage is a price floor on the price of labour. A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product, [21] good, commodity, or service. A price floor must be higher than the equilibrium price in order to be effective. The equilibrium price, commonly called ...
On the other hand, a decrease in technology or increase in business costs will decrease the quantity supplied at each price, thus increasing equilibrium price. The process of comparing two static equilibria to each other, as in the above example, is known as comparative statics. For example, since a rise in consumers' income leads to a higher ...
Let B(v) be the equilibrium bid function in the sealed first-price auction. We establish revenue equivalence by showing that B(v)=e(v), that is, the equilibrium payment by the winner in one auction is equal to the equilibrium expected payment by the winner in the other. Suppose that a buyer has value v and bids b.
The outcome of the model equilibrium involved firms pricing above marginal cost; hence, the competitive price. In his review, Bertrand argued that each firm should instead maximise its profits by selecting a price level that undercuts its competitors' prices, when their prices exceed marginal cost. [ 2 ]