UNIT 11: RENT-SEEKING, PRICE-SETTING, AND MARKET DYNAMICS

What is competitive equilibrium?

when buyers and sellers are both price-takers and markets clear

What type of shocks does equilibrium price respond to?

exogenous shocks - changes outside the model

What does a exogenous shift in supply or demand mean for the equilibrium?

it means that the price has to change for the market to reach a new equilibrium

The market equilibrates through what type of behaviour and on what side of the market.

the market equilibrates through rent-seeking behaviour on the short side of the market in response to excess supply and demand

* aka market equilibration through rent-seeking

Define Economic Rent.

income in excess of the next best alternative

Describe Market organization. what does it determine?

* prices come from the interest of and relationships between buyers and sellers
* determines how these relationships influence prices

What point on a graph does it show long run equilibrium?

P = MC = AC

When is the number of firms exogenous and when is it endogenous?

* exogenous in the short run, fixed
* endogenous in the long run, determined by the model

What happens to supply in the long run as more firms enter production?

supply is more elastic in the long run