New answers tagged supply-and-demand
2
Your question is somewhat ill-posed as stated, because none of your examples are good instances of businesses creating artificial scarcity. Each of them are businesses that face real capacity constraints, whether it be building space and fire-code restrictions or an attempt to manage a sort of tragedy-of-the-commons demeaning of the service.
But you are ...
3
In fact, the law is quite easy to prove (and holds under very general assumptions). Consider a firm that chooses which quantity $q \geq 0$ to supply taking the price $p > 0$ as given. Let $C(q)$ denote the firm's total cost from supplying $q$ units so that the firm's total profit can be written $pq - C(q)$. Assume that the firm chooses $q$ to maximise its ...
1
This is some dynamic supply-demand model (I am not aware of it having some special name).
The first equation gives you the evolution of prices. It says that there will be inflation if there is excess demand $d_t>s_t$ and deflation if there is excess supply (that’s why the first equation has ($d_t-s_t$).
The second equation tells you how supply changes ...
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Lots of people have good, comprehensive answers, but here’s a very short one:
First, you’re assuming the firm is a price setter. In competitive markets, both producers and firms are price takers. When we draw the demand curve, we assume a consumer faces a given price; similarly, when we draw a supply curve, we assume the firm faces a given price.
Second, ...
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This is so because usually the marginal costs of firms are increasing in production and many economists think also at increasing rate.
Intuitively you are only willing to provide good Q if the marginal costs are less or equal to price $MC \leq P$. Providing goods to the market at price below marginal cost is irrational and hence inconsistent with basic ...
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