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44 votes

Why does Taiwan dominate the semiconductors market?

This is because semiconductors have economies of scale over extremely large number of units produced. Economies of scale mean that the more you produce the cheaper production gets. Many firms will ...
1muflon1's user avatar
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24 votes

Why is the spot price of electricity determined by the highest price that gets offered? Can't they scale it according to the actually offered prices?

There are two major issues to consider here, first is the difference between a typical uniform price auction used in many electricity markets and the pay as bid mechanism you're recommending. The ...
CompEcon's user avatar
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23 votes

Why is the spot price of electricity determined by the highest price that gets offered? Can't they scale it according to the actually offered prices?

most energy markets work using "spot markets", where everyone puts in an offer for how much electricity they can provide and at what price, and then everyone gets paid the highest price ...
1muflon1's user avatar
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18 votes
Accepted

Is there a “runaway” threshold for Debt-to-GDP Ratio in the U.S.?

Is there a threshold we can pass in terms of debt-to-GDP that will cause a runaway sort of effect? No there is no threshold or magic number (at least not one we know of). Few years ago there was an ...
1muflon1's user avatar
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16 votes
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Why isn't the cost of shoes affected by their size?

Most of the price of creating a shoe is the cost of labour to make it and the cost to ship it to the store. The cost of the materials needed to make the shoe is negligible. So, they can ignore the ...
Shane's user avatar
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11 votes
Accepted

Are stock exchanges market makers?

No, they are not market makers. A market maker is someone who (i) quotes two prices (one 'low' and one 'high'), (ii) will buy from any seller at the low quoted price (even if there is no ...
Ubiquitous's user avatar
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10 votes
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If Germany is the largest exporter, why do Chinese products pervade the the US market?

Intermediate and capital goods used in the production of other goods are often very expensive and made by Germany. Think fancy manufacturing equipment in chemicals, semiconductors, and metal ...
BKay's user avatar
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7 votes

Why is the spot price of electricity determined by the highest price that gets offered? Can't they scale it according to the actually offered prices?

Because it incentivizes the cheaper producers to ask for higher prices. If the solar farm costs basically \$0/MWh and the gas turbine costs \$1000/MWh, then the solar farm has to predict whether the ...
Quitting Due To Antisemitism's user avatar
7 votes

Why is the spot price of electricity determined by the highest price that gets offered? Can't they scale it according to the actually offered prices?

I get that might incentivize the cheaper producers asking for higher prices and thus partially negating the intended effect, but there must be a way around that? You answered it yourself. The spot ...
Rainer P.'s user avatar
  • 171
6 votes

How can the abuses of monopoly power lead to market failure?

First, let's be clear what we mean by abuse of dominance: this is when a firm is a monopoly or near-monopoly, and attempts to use that position in order to perpetuate or enhance its dominance of the ...
Ubiquitous's user avatar
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6 votes

Why is the spot price of electricity determined by the highest price that gets offered? Can't they scale it according to the actually offered prices?

The basic idea of the market is to incentivise consumers to reduce consumption at times of high demand, and producers with high-cost (inefficient) plant to keep it operable to supply into such peaks ...
nigel222's user avatar
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5 votes
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"For a market to exist there must be scarcity" (T/F)

I agree that air is not, in any meaningful sense, scarce. But there is no market in air! There is a market in canned air, but that's different because canned air is most definitely scarce. The can is ...
Ubiquitous's user avatar
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5 votes
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Competitive vs complete and non-competitive vs incomplete marekts

Complete market is a market where every possible asset or good can be assigned a price and where you have perfect information, can make perfect contracts and zero transaction costs. Any market can be ...
1muflon1's user avatar
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5 votes
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Why didn't other oil pricing benchmarks such as Brent go negative?

The Brent price is for oil physically delivered in the UK. The price that went negative if for oil delivered in West Texas, US. The physical and economic conditions at the two places are different - ...
simon at rcl's user avatar
5 votes
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Properties of Financial Markets in Real Life

Equilibria: in the macroeconomic sense of aggregate equilibrium where all markets clear, markets are most likely never in any equilibrium but rather in constant flux between different equilibria, ...
1muflon1's user avatar
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5 votes

Violation of the zero-profit condition

Essentially, from a teaching point of view, the reason perfect competition is given in your question is because you can assume p=MR, i.e the firm is a price taker. As more firms enter the market the ...
BB King's user avatar
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4 votes
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Why currency purchasing power is linked to confidence in central banks

TL;DR Version: The trust that money has value gives it its value. If money can be exchanged for gold, then this makes people trust that it will have value. If this is not the case (and it is not, ...
BB King's user avatar
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4 votes

Is the marginal cost the same for every firm in a perfectly competitive market?

No, the marginal cost curves are not necessarily the same for each firm in the market. However the values of marginal costs are. To disprove the general claim that "The marginal cost curve of each ...
BB King's user avatar
  • 6,158
4 votes

What is the wealth of a company?

The "wealth" of a company is not a well-defined term. The worth of a company, its market value, is whatever someone is willing to pay for it. The market's best guess of that value, for listed ...
410 gone's user avatar
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4 votes
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Why do externalities lead to a Pareto-inefficient outcome?

If you allow side payments then the issue you identify goes away in a Coase sense. The citizens being polluted could pay for production to be reduced by one unit. This amount would have to be ...
Henry's user avatar
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4 votes
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Is it possible to sell a rival and non-excludable product?

A good is excludable if people can be prevented from using it. If one person is using any rival good then this good won't be available for others. You asked about rival and non-excludable good such as ...
desi arthshastri's user avatar
4 votes

Bandwidth, latency and price

There is an active body of research on network economics. See, for example, Social and Economic Networks by Jackson Connections by Goyal for an introduction to the topic. These models occasionally ...
Ubiquitous's user avatar
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4 votes

What is homebody economy?

A homebody is someone who doesn't leave their house much. The "homebody economy" refers to economic activities that do or do not do well when people tend to stay at home, which is exactly ...
Nuclear Hoagie's user avatar
4 votes

Increasing returns, implications?

Provided that increasing returns to scale apply over the whole production function of the company it is likely that it would become natural monopoly. For example, Mankiw in Principles of Economics (pp ...
1muflon1's user avatar
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4 votes
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What has been the reception of Posner & Weyl’s claim that property rights lead to market power?

In narrow sense of the word the article was definitely peer reviewed as it was published in Journal of Legal Analysis. But in this narrow sense it was most likely peer reviewed by jurists not ...
1muflon1's user avatar
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4 votes

Understanding Vernon Smith's 1962 "An Experimental Study of Competitive Market Behavior"

Gode and Sunder (1993) recorded a result similar to yours. The abstract of the paper reads: We report market experiments in which human traders are replaced by "zero-intelligence" programs ...
Herr K.'s user avatar
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4 votes

Literature recommendation on market microstructure (real estate, car, etc.)

Important work in the car market has been done within the BLP-framework (Berry,Levinsohn,Pakes). The modeling techniques used rely heavily on Mixed Logit Models. Without any prior knowledge of this ...
Jesper Hybel's user avatar
  • 3,386
4 votes

How can we explain quantity competition and price taking?

When I studied the basic principles of microeconomics, a price-setting monopoly made perfect sense to me, but price-taking firms under perfect competition never did. No single firm can influence the ...
1muflon1's user avatar
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