Market price - Revision history

Vipul: /* Variations for monopolistic or oligopolistic markets */

2017-01-03T15:31:30Z

Variations for monopolistic or oligopolistic markets

← Older revision		Revision as of 15:31, 3 January 2017
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	===Variations for monopolistic or oligopolistic markets===		===Variations for monopolistic or oligopolistic markets===

	For a market with only one (monopolistic) seller, the concept of market price can be replaced by the ''price chosen by that firm''. Only part of the analysis of market price, however, applies in such a context, because the [[determination of price and quantity ~~traded~~ by monopolistic firm in the short run\|choice of price is part of the firm's optimization process]] and does not arise from market-level intersection of demand and supply curves.		For a market with only one (monopolistic) seller, the concept of market price can be replaced by the ''price chosen by that firm''. Only part of the analysis of market price, however, applies in such a context, because the [[determination of price and quantity supplied by monopolistic firm in the short run\|choice of price is part of the firm's optimization process]] and does not arise from market-level intersection of demand and supply curves.

	For an oligopolistic market, there are a few sellers, and the determination of price in such a setting is a result of interactions between these sellers that may best be modeled by game theory and depend on the specific beliefs of the sellers about each other.		For an oligopolistic market, there are a few sellers, and the determination of price in such a setting is a result of interactions between these sellers that may best be modeled by game theory and depend on the specific beliefs of the sellers about each other.

Vipul: /* Changes in the demand curve */

2017-01-03T15:28:01Z

Changes in the demand curve

← Older revision		Revision as of 15:28, 3 January 2017
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	* An outward (or rightward) shift in the demand curve leads to an increase both in the market price and in the equilibrium quantity traded. This increase is achieved by the mechanism discussed above: temporary scarcity is created, suppliers respond by increasing price and production, and buyers respond by reducing their demand ''from the increased value''.		* An outward (or rightward) shift in the demand curve leads to an increase both in the market price and in the equilibrium quantity traded. This increase is achieved by the mechanism discussed above: temporary scarcity is created, suppliers respond by increasing price and production, and buyers respond by reducing their demand ''from the increased value''.
	* An inward (or leftward) shift in the demand curve leads to an decrease both in the market price and in the equilibrium quantity traded. This decrease is achieved by the mechanism discussed above: a surplus is created, suppliers try to get rid of it by reducing quantity produced as well as prices, and buyers respond by increasing their demand ''from the reduced value''.		* An inward (or leftward) shift in the demand curve leads to a decrease both in the market price and in the equilibrium quantity traded. This decrease is achieved by the mechanism discussed above: a surplus is created, suppliers try to get rid of it by reducing quantity produced as well as prices, and buyers respond by increasing their demand ''from the reduced value''.

	Note that in certain situations, the demand curve may change shape in a way that is not uniformly inward or outward (for instance, this happens when there are changes in the income distribution over the collection of households being considered).		Note that in certain situations, the demand curve may change shape in a way that is not uniformly inward or outward (for instance, this happens when there are changes in the income distribution over the collection of households being considered).

Vipul: /* From a higher price */

2017-01-03T15:27:44Z

From a higher price

← Older revision		Revision as of 15:27, 3 January 2017
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	[[File:Surplusabovemarketprice.png\|500px\|thumb\|right\|Surplus of magnitude AB occurs above market price]]		[[File:Surplusabovemarketprice.png\|500px\|thumb\|right\|Surplus of magnitude AB occurs above market price]]
	When the price of a good exceeds the market price, supply exceeds demand. This is a situation of [[excess supply]], or surplus. For instance, in the adjacent figure, the surplus is given by the length of the segment AB). A situation of surplus has the following effects:		When the price of a good exceeds the market price, supply exceeds demand. This is a situation of [[excess supply]], or surplus. For instance, in the adjacent figure, the surplus is given by the length of the segment AB. A situation of surplus has the following effects:

	* Sellers, seeing unsold inventory, tend to reduce the quantity supplied as well as reduce their price. In other words, they move downward and leftward along the supply curve. (This may typically happen in two ways: sellers cut down their individual production, and some sellers go out of business).		* Sellers, seeing unsold inventory, tend to reduce the quantity supplied as well as reduce their price. In other words, they move downward and leftward along the supply curve. (This may typically happen in two ways: sellers cut down their individual production, and some sellers go out of business).

Vipul: /* External changes and comparative statics */

2014-02-09T22:44:03Z

External changes and comparative statics

← Older revision		Revision as of 22:44, 9 February 2014
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	{{quotation\|The analysis here assumes that the demand curve is downward-sloping, i.e., it assumes the [[law of demand]]. It also assumes that the supply curve is upward-sloping, i.e., it assumes the [[law of supply]]. For a discussion of other kinds of situations (particularly relevant for [[long-run supply curve]]s seen in a [[decreasing cost industry]]), refer [[comparative statics for demand and supply#Downward-sloping supply curve]].}}		{{quotation\|The analysis here assumes that the demand curve is downward-sloping, i.e., it assumes the [[law of demand]]. It also assumes that the supply curve is upward-sloping, i.e., it assumes the [[law of supply]]. For a discussion of other kinds of situations (particularly relevant for [[long-run supply curve]]s seen in a [[decreasing cost industry]]), refer [[comparative statics for demand and supply#Downward-sloping supply curve]].}}

			{{quotation\|The analysis here assumes competitive markets. A discussion of the dynamics under other market structures can be found on the page [[comparative statics for demand and supply]].}}

	The demand curve and supply curve, and the subsequent analysis of market price, are all done ''[[ceteris paribus]]'' all the [[exogenous parameter]]s (external factors) that influence the demand curve and supply curve. In this section, we study the [[comparative statics]]: the influence of changes in these external factors on the equilibrium price.		The demand curve and supply curve, and the subsequent analysis of market price, are all done ''[[ceteris paribus]]'' all the [[exogenous parameter]]s (external factors) that influence the demand curve and supply curve. In this section, we study the [[comparative statics]]: the influence of changes in these external factors on the equilibrium price.

Vipul at 22:42, 9 February 2014

2014-02-09T22:42:55Z

← Older revision		Revision as of 22:42, 9 February 2014
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	==Definition==		==Definition==

			The concept of ''market'' price makes sense in the context of '''markets that are either perfectly competitive or very close to that''', because only in such contexts is the price an emergent feature of the market rather than a strategic choice made by a few identifiable individuals.

	The '''market price''' for a good, also termed its '''market-clearing price''', '''equilibrium price''', or the '''price at which it clears the market''', is the [[defining ingredient::price]] at which the [[defining ingredient::demand\|quantity demanded]] for the good equals the [[defining ingredient::supply\|quantity supplied]] of the good. The market price of a good depends on all the factors that influence the [[defining ingredient::demand curve]] for the good as well as all the factors that influence the [[defining ingredient::supply curve]] for the good.		The '''market price''' for a good, also termed its '''market-clearing price''', '''equilibrium price''', or the '''price at which it clears the market''', is the [[defining ingredient::price]] at which the [[defining ingredient::demand\|quantity demanded]] for the good equals the [[defining ingredient::supply\|quantity supplied]] of the good. The market price of a good depends on all the factors that influence the [[defining ingredient::demand curve]] for the good as well as all the factors that influence the [[defining ingredient::supply curve]] for the good.

	When the price of a good exceeds the market price, quantity supplied exceeds quantity demanded. This is a situation of [[excess supply]], or surplus. When the price of a good is less than the market price, quantity demanded exceeds quantity supplied. This is a situation of [[excess demand]], or scarcity.		When the price of a good exceeds the market price, quantity supplied exceeds quantity demanded. This is a situation of [[excess supply]], or surplus. When the price of a good is less than the market price, quantity demanded exceeds quantity supplied. This is a situation of [[excess demand]], or scarcity.

			===Variations for monopolistic or oligopolistic markets===

			For a market with only one (monopolistic) seller, the concept of market price can be replaced by the ''price chosen by that firm''. Only part of the analysis of market price, however, applies in such a context, because the [[determination of price and quantity traded by monopolistic firm in the short run\|choice of price is part of the firm's optimization process]] and does not arise from market-level intersection of demand and supply curves.

			For an oligopolistic market, there are a few sellers, and the determination of price in such a setting is a result of interactions between these sellers that may best be modeled by game theory and depend on the specific beliefs of the sellers about each other.

	==Graphical determination of market price==		==Graphical determination of market price==

Vipul: /* Definition */

2013-02-24T19:51:35Z

Definition

← Older revision		Revision as of 19:51, 24 February 2013
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	==Definition==		==Definition==

	The '''market price''' for a good, also termed its '''market-clearing price''', '''equilibrium price''', or the '''price at which it clears the market''', is the [[defining ingredient::price]] at which the [[defining ingredient::demand\|quantity demanded]] for the good equals the [[defining ingredient::supply\|quantity ~~suppled~~]] of the good. The market price of a good depends on all the factors that influence the [[defining ingredient::demand curve]] for the good as well as all the factors that influence the [[defining ingredient::supply curve]] for the good.		The '''market price''' for a good, also termed its '''market-clearing price''', '''equilibrium price''', or the '''price at which it clears the market''', is the [[defining ingredient::price]] at which the [[defining ingredient::demand\|quantity demanded]] for the good equals the [[defining ingredient::supply\|quantity supplied]] of the good. The market price of a good depends on all the factors that influence the [[defining ingredient::demand curve]] for the good as well as all the factors that influence the [[defining ingredient::supply curve]] for the good.

	When the price of a good exceeds the market price, quantity supplied exceeds quantity demanded. This is a situation of [[excess supply]], or surplus. When the price of a good is less than the market price, quantity demanded exceeds quantity supplied. This is a situation of [[excess demand]], or scarcity.		When the price of a good exceeds the market price, quantity supplied exceeds quantity demanded. This is a situation of [[excess supply]], or surplus. When the price of a good is less than the market price, quantity demanded exceeds quantity supplied. This is a situation of [[excess demand]], or scarcity.

Vipul: /* External changes and comparative statics */

2011-12-03T19:21:08Z

External changes and comparative statics

← Older revision		Revision as of 19:21, 3 December 2011
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	==External changes and comparative statics==		==External changes and comparative statics==

			{{quotation\|The analysis here assumes that the demand curve is downward-sloping, i.e., it assumes the [[law of demand]]. It also assumes that the supply curve is upward-sloping, i.e., it assumes the [[law of supply]]. For a discussion of other kinds of situations (particularly relevant for [[long-run supply curve]]s seen in a [[decreasing cost industry]]), refer [[comparative statics for demand and supply#Downward-sloping supply curve]].}}

	The demand curve and supply curve, and the subsequent analysis of market price, are all done ''[[ceteris paribus]]'' all the [[exogenous parameter]]s (external factors) that influence the demand curve and supply curve. In this section, we study the [[comparative statics]]: the influence of changes in these external factors on the equilibrium price.		The demand curve and supply curve, and the subsequent analysis of market price, are all done ''[[ceteris paribus]]'' all the [[exogenous parameter]]s (external factors) that influence the demand curve and supply curve. In this section, we study the [[comparative statics]]: the influence of changes in these external factors on the equilibrium price.

Vipul: /* Definition */

2011-12-03T19:16:45Z

Definition

← Older revision		Revision as of 19:16, 3 December 2011
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	==Definition==		==Definition==

	The '''market price''' for a good, also termed its '''market-clearing price''', '''equilibrium price''', or the '''price at which it clears the market''', is the [[defining ingredient::price]] at which the [[defining ingredient::demand]] for the good equals the [[defining ingredient::supply]] of the good. The market price of a good depends on all the factors that influence the [[defining ingredient::demand curve]] for the good as well as all the factors that influence the [[defining ingredient::supply curve]] for the good.		The '''market price''' for a good, also termed its '''market-clearing price''', '''equilibrium price''', or the '''price at which it clears the market''', is the [[defining ingredient::price]] at which the [[defining ingredient::demand\|quantity demanded]] for the good equals the [[defining ingredient::supply\|quantity suppled]] of the good. The market price of a good depends on all the factors that influence the [[defining ingredient::demand curve]] for the good as well as all the factors that influence the [[defining ingredient::supply curve]] for the good.

	When the price of a good exceeds the market price, ~~supply~~ exceeds ~~demand~~. This is a situation of [[excess supply]], or surplus. When the price of a good is less than the market price, ~~demand~~ exceeds ~~supply~~. This is a situation of [[excess demand]], or scarcity.		When the price of a good exceeds the market price, quantity supplied exceeds quantity demanded. This is a situation of [[excess supply]], or surplus. When the price of a good is less than the market price, quantity demanded exceeds quantity supplied. This is a situation of [[excess demand]], or scarcity.

	==Graphical determination of market price==		==Graphical determination of market price==

Vipul: /* Hurdles to convergence */

2011-07-25T15:39:50Z

Hurdles to convergence

← Older revision		Revision as of 15:39, 25 July 2011
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	===Hurdles to convergence===		===Hurdles to convergence===

	In some cases, [[imperfect information]] in the hands of buyers and sellers, high [[transaction cost]]s, and deviations from [[rational behavior]] (for instance, [[adaptive expectations]]) could be responsible for the price not converging to its equilibrium level. Rather, it may oscillate around the equilibrium level. Even so, it is highly unlikely that the price remains stably to one side of the equilibrium level.		* The [[price stickiness]] phenomenon may create a time lag for prices to adjust to the new equilibrium level when there are changes in demand and supply.
			* In some cases, [[imperfect information]] in the hands of buyers and sellers, high [[transaction cost]]s, and deviations from [[rational behavior]] (for instance, [[adaptive expectations]]) could be responsible for the price not converging to its equilibrium level. Rather, it may oscillate around the equilibrium level. Even so, it is highly unlikely that the price remains stably to one side of the equilibrium level.
	Another hurdle to convergence is the fact that since a lot of other factors in the economy are constantly changing, the price does not have enough time to converge. In other words, the demand and supply curves are themselves moving around too fast for the equilibrating tendency on price to play out in full. This is particularly notable when the economy is going through severe [[supply shock]]s, [[hyperinflation]], or other changes.		* Another hurdle to convergence is the fact that since a lot of other factors in the economy are constantly changing, the price does not have enough time to converge. In other words, the demand and supply curves are themselves moving around too fast for the equilibrating tendency on price to play out in full. This is particularly notable when the economy is going through severe [[supply shock]]s, [[hyperinflation]], or other changes.

Vipul: /* Changes in the demand curve */

2010-09-11T20:53:15Z

Changes in the demand curve

← Older revision		Revision as of 20:53, 11 September 2010
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	===Changes in the demand curve===		===Changes in the demand curve===

	[[File:Demandexpansionandmarketprice.png\|thumb\|400px\|~~right~~\|When the demand curve expands from the blue to the purple curve, demand increases at the ~~eqiulibrium~~ price to A, leading to a shortfall. Price and supply increase till a new equilibrium is attained]]		[[File:Demandexpansionandmarketprice.png\|thumb\|400px\|left\|When the demand curve expands from the blue to the purple curve, demand increases at the old equilibrium price to A, leading to a shortfall. Price and supply increase till a new equilibrium is attained]]
			[[File:Demandcontractionandmarketprice.png\|thumb\|400px\|right\|When the demand curve contracts from the blue to the purple curve, demand decreases at the old equilibrium price to A, leading to a surplus. Price and supply decrease till a new equilibrium is attained]]

	We have the following basic observations:		We have the following basic observations: