ECO 2144 Study Guide - Final Guide: Supply And Demand, Market Power, Economic Equilibrium

• School: University of Ottawa
• Department: Economics
• Course: ECO 2144
• Professor: Gordon Lenjosek

Document Summary

An exchange mechanism that allows buyers to trade with sells. Perfect market competition: everyone is a price taker. Free entry/exit: all firms sell identical products. Fi(cid:396)(cid:373)"s outputs = pe(cid:396)fe(cid:272)t su(cid:271)stitutes: everyone has full info, low transaction costs. Whe(cid:374) fi(cid:396)(cid:373)s e(cid:374)te(cid:396) o(cid:396) lea(cid:448)e ma(cid:396)ket suppl(cid:455) (cid:272)u(cid:396)(cid:448)e shifts. Market cannot be in long run equilibrium unless # of firms is stable. Fir(cid:373)"s a(cid:374)d market"s supply curve depend on input prices (cid:1869)(cid:3002)=(cid:1857)+(cid:1858)(cid:1868) (cid:1869)(cid:3003)=(cid:1859)+ (cid:1868) Long run market conditions: identical firms, input prices fixed, free entry/exit. If 2 of these conditions occur, long run market supply curve is horizontal: identical firms, input prices fixed, firms cannot enter/exit freely. Fir(cid:373)"s supply curve does not cha(cid:374)ge as output cha(cid:374)ges. 1 = avcmin is the same for all firms. 3 = equilibrium price will return to p0 in long run. Long run supply curve is horizontal at p0 = lracmin. I(cid:374)(cid:272)(cid:396)ease i(cid:374) de(cid:373)a(cid:374)d i(cid:374)(cid:272)(cid:396)ease i(cid:374) short run equilibrium. New equilibrium reached when p =p0 = lracmin.