Econ501aL14 - Short Run Market Equilibrium The market...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Short Run Market Equilibrium The market supply curve is found by horizontally adding the supply curves of individual ¯rms. If there are m ¯rms, we have X s ( p x )= m X j =1 x j ( p x ) : Just as we can talk about the elasticity of demand, the price elasticity of supply is de¯ned as " s = dX s dp x p x X s : A short run market equilibrium is de¯ned to be a price and a quantity of output, where (1) demand is derived from utility maximization, (2) supply is derived from ¯rms choosing variable inputs and output to maximize pro¯ts, and (3) supply equals demand.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
0 5 10 15 20 25 30 35 $/x 2468 1 0 x Firm's Supply Curve 0 5 10 15 20 25 30 35 px 10 20 30 40 X Market Supply Curve Each consumer and each ¯rm individually takes the price as beyond their control. Optimization by all in- dividuals determines the price, through demand=supply. The price then determines the quantities demanded andsupp l iedbyeachconsumerand¯rm .
Background image of page 2
Example: 1000 consumers, each with income, M =1 and utility function u ( x;y )= xy . 10 ¯rms, each with production function f ( K;L K 1 = 2 L 1 = 2 , and a short run capital input ¯xed at K = 1.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 10

Econ501aL14 - Short Run Market Equilibrium The market...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online