2. There are five buyers and five sellers in a perfectly competitive market. Each buyer wishe
s to purchase one single unit of the good. The willingness to pay displayed by these buyers is presented in the following table:
Buyer:
|
1
|
2
|
3
|
4
|
5
|
Willingness to Pay:
|
$4
|
$8
|
$X
|
$X
|
$7
|
XXXX XXXX sells also XXXX XXX XXXX XX the XXXX. XXX cost of XXXXXXXXX that XXXX for these XXXXX is denoted by the following table:
Seller:
|
1
|
X
|
3
|
X
|
5
|
XXXXXXXXXX XXXX:
|
$X
|
$2
|
$X
|
$5
|
$X
|
a) Suppose XXXX the price XXX XXXX good XX set as X = 3. Is there XXXXXX demand or supply in XXXX market? XXXXXXX.
b) Assume that in XXXX of XXXXXXXXXXXX XXXX sellers XXX buyers proceed XX supply XXX demand in this XXXXXX. What XX XXX equilibrium XXXXXXXX we XXXX observe in this market and the range XX XXXXXX XXXX XXXXX support that quantity? XXXXXXX.
c) Determine XXX XXXXX XX XXX maximum XXXXX XXXXXXX XXXX XX XXX XXXXXXX in XXXX XXXXXX. Explain.
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A perfectly competitive market XXXXX the XXXX XX XXXXXX and supply hold is in equilibrium. Answer XXX following XXXXXXXXX.
c) XXXXXXX XXXXXXX that less XXXXXX take XXXX in XXXX XXXXXX. The XXXXX elasticity XX XXXXXX is estimated XX XX XXX,X = X/X. What happens to XXX total revenues XXXXXX XX XXXXXXX? Explain XXX illustrate the change occurring in those XXXXXXXX XX a graph.
b) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.XXXXXXXXXXXXXXXXXXXX demand XX XXXXX XXXXXXXXX to XX εQd,X = X/X. XXXX XXXXXXX XX XXX XXXXX expenditures incurred by consumers? Explain and XXXXXXXXXX the XXXXXX XXXXXXXXX in XXXXX expenditures XX a XXXXX.
2(b)
When production XXXX increases then the XXXXXX XXXXX shifts XX given then demand curve XXX , as a XXXXXX the demand falls from XX to XX and XXXXX rises XXXX XX XX p2. XXXXX the elasticity of demand XX 3 / X , XXX quantity XXXXXX will fall XXXX XXXX proportionately. As a XXXXXX, the XXXXX XXXXXXXXXXX XXXX go down XXXX XX to XX.
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X (c)
XXX elasticity XX supply XX 1/4, XXXX means if XXXXX XXXXX (XXXXXXXXX) XX 1 % point XXX XXXXXXXX XXXXXX will rise(XXXXXXXX) XX less than X % XXXXX.
XXX XXXXX XXXXXXX (XX) XXX XX XXXXXXXXX as -
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To see XXX XXXXXX XX less buyers in the market XX XXX take XXX and then XXXX derivatives on both sides,
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The XXXXXXXX (X) XXXXXXXXX XXXX XXX XXXXXX in XXX XXXXX revenue XX the XXXXXX is XXX sum of the change in price Images Not Shown and change in XXXXXXXX XXXXXX Images Not Shown .
When XXXX few buyer enter XXXX XXX market and XXXX already XXX XXXXXX is in XXXXXXXXXXX, then given the XXXXXX XXX XXX commodity, XXXXXX will XXXX. XXXX then XXXX reduce the XXXXX XX the XXXXXXXXX, XXXXX means Images Not Shown . XXX according XX the elasticity XX supply XXXXXXXXXXX, it is XXXXXXXX 1/4 XXXXX XXX supply is XXXXXX XXXXXXXXX and Images Not Shown .
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Therefore XXXX few XXXXXX both XXX price XXX quantity XXXXX. XX a result XXX XXXXX revenue (TR) XXXX fall as XXXX , Images Not Shown
XXXXXXXXXX, XXX XXXXXXX equilibrium XX XX E1 XXX XX few XXXXXX take XXXX, XXX XXXXXX shifts down from D1 XX XX XXXXX XXX position of XXX XXXXXX XXXXX XX. New XXXXXXXXXXX XX XX E2. Price falls XXXX XX to p2 XXX XXXXXX also XXXXX XXXX XX to XX at equilibrium.
XXX XXXXX XXXXXXX XXXXX XXXXXX down XXXX XXX to TR2 XXX as XXXXXX falls from XX XX q2 the XXXXX revenue falls from A1 to XX.
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Therefore XX can XXXXXXXX with the XXXXX elasticity XX the supply 1/4 , XXXX fewer XXXXXX the revenue XX the XXXXXX XXXX fall.
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