ECON 230D1 Chapter 8: Chapter 8
14 Dec 2017
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Price taking: economists say a market is competitive when each rm in the market is a price taker. The rm has to be a price taker if it faces a demand curve that is horizontal at the market price. At such a demand curve, a rm can sell as much as it wants at that price, so it has no incentive to lower its price. Tuesday, december 5, 2017: dr(p) = d(p) - so(p). Basically the di erence betweenez the quantity demanded in a market and the quantity supplied in that same market. If demand is less than the quantity supplied in a certain market, then rms in the market experience 0 residual demand. In the graph above, residual demand of 0 is attained at the intersection of of. As you can see, the residual demand curve is much atter than the market demand curve: because the residual demand curve is so at, elasticity is much higher.
