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ECON100A_18

# ECON100A_18 - 15 problems Demand for factors of...

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1/4/2008 1 Announcements – Final Exam 15 problems Demand for factors of prod (Pset7, #10) will not be covered on final (We’ve done a lot already…) (Will be covered in 100B…) On final, you will not have to draw complicated graph of equilibrium dynamics of competitive markets, but should understand underlying ideas. Bring I.D. When 5 minutes are left, you may not leave your seat but will wait to have your exam taken by T.A.s Monday O.H. will continue during exam week . Note: Sara Adler’s O.H. moved to 9-10:30 am Monday Note: I will have an extra O.H.: Monday 12-1

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1/4/2008 2 Equilibrium Dynamics A to B: Shift in demand causes new price P2. Quantity produced by firm cannot be adjusted in Very Short Run, nor can # of firms be adjusted. B to C: At the firm level, each firm adjusts labor and produces more. As firms do this, the quantity brought to market rises and so price falls. In the short-run, this process stabilizes at C, where P=SMC at the firm level and new demand D2 intersects the short-run supply curve, SS1 at the market level. C to D: Two things happen in the long run. Firms are making profits, so new firms enter. This causes quantity brought to market to rise and price to fall. Also, firms adjust their quantity produced to respond to the lower price. The process stabilizes at D. Each firm is producing exactly what it produced before, but there are more firms, and thus higher quantity brought to market. (The fact that there are more firms also shifts the market level short-run supply curve out.) q P 2 P 3 P 1 \$ LAC LMC SMC Q A C D \$ SS 2 D 1 SS 1 LS D 2 B C A D B
1/4/2008 3 Equilibrium Dynamics Simplifying…. Q P \$ LAC LMC SMC Q A D \$ D 1 LS D 2 A D

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1/4/2008 4   Pset 7,#9 A to B: Drop in demand causes new price P2. Quantity produced by firm cannot be adjusted in Very Short Run, nor can # of firms be adjusted. B to C: At the firm level, each firm adjusts labor and produces less. As firms do this, the quantity brought to market falls and so price rises. In the short-run, this process stabilizes at C, where P=SMC at the firm level and new demand D2 intersects the short-run supply curve, SS1 at the market level. C to D: Two things happen in the long run. Firms are losing money, so some of them
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ECON100A_18 - 15 problems Demand for factors of...

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