New answers tagged

0

A price-response function differs from a demand curve. A price-response function appears in a model where prices are selected by the firm, instead of output. A demand function appears when firms are price takers and cannot influence the price of the product on the market. They will have to sell it at whatever the going rate is. I will try to answer the ...


0

Principle of Taxation: Tax incidence/burden falls more heavily by the more inelastic party. So, If supply is perfectly inelastic, then producers will bear the entire burden of the tax. (This is probably what the Wikipedia writer was thinking of.) In reality, supply is rarely (never?) perfectly inelastic. So, consumers will usually also bear some burden of ...


0

Because the supply of pounds in the model is controlled and fixed by the central bank. The central bank does not have to change (increase) the supply of pounds when the exchange rate changes. So the supply of pounds will be just a flat vertical line because no matter what the exchange rate is the supply of pounds will not respond to exchange rate as it is ...


5

I think you have a typo in your $q_0$: the exponent of $N$ should be $-\frac{b}{a+b}$. I did the whole calculus with this corrected type of $q_0$ and I was able to replicate your results (this is why assume $q_0$ has only a typo and you actually did the algebra with the correct $q_0$). I suggest that the discrepancies to the paper are indeed connected to ...


0

The calculation is correct but the explanation is not simply 'equal the equations and solve for Y'. Following Blanchard et al Macroeconomics: A European Perspective, 2nd ed. ch 5. by definition LM curve represents all the combinations of output and interest rate for which the money market is in equilibrium, i.e. the demand for money equals the supply of ...


1

Lets first try to understand what it means: when a demand / supply curves touch the axes. The point where the demand curve touches the Y-axis (Price-axis) can be interpreted as the price which makes the first consumer willing to pay for that good (prohibitive price). The point where the demand curve touches the X-axis (Quantity-axis) can be interpreted as ...


1

Broadly, the answer to your question is it depends on the context. Generally, if you have some sort of functional form for the curves, you can tell whether they touch the axes by seeing if there is an intercept on either the P or Q axis (set P = 0 to see if there is a Q-intercept, and vice versa). So, for example, if you're working on a monopoly problem that ...


0

Agree with the answer by Kenny, I'd just also add that if you take a look at the horizontal axis, the curve shifts left by $n(q_1 - q_2)$ units, while the firm's quantity decreases by $q_1 - q_2$. So, in the quantity dimension, you do get that expected factor of $n$ when you look at the horizontal difference in the market vs. the firm.


Top 50 recent answers are included