11 - Rent-seeking, price-setting and market dynamics

Question 1

Market equilibration through rent-seeking

Answer 1

The market equilibrates through rent-seeking behaviour on the short side of the market: sellers in case of excess demand; buyers in case of excess supply

Question 2

Long-run equilibria

Answer 2

An equilibrium that is achieved when variables that were held constant in the short run (for example, the number of firms in a market) are allowed to adjust, as people have time to respond to the situation

Question 3

Short-run equilibria

Answer 3

An equilibrium that will prevail while certain variables (for example, the number of firms in a market) remain constant, but where we expect these variables to change when people have time to respond to the situation

Question 4

Fundamental value of an asset

Answer 4

The asset price based on anticipated future earnings and the level of risk

Question 5

Continuous double auction

Answer 5

The trading mechanism highlighting that stock markets don’t operate in fixed time periods, such as an hour, rather trade takes place continuously and prices are always changing.

Question 6

Order book

Answer 6

A record of limit orders placed by buyers and sellers, but not yet fulfilled

Question 7

Price bubble

Answer 7

Sustained and significant rise in the price of an asset fuelled by expectations of future price increases

Question 8

Stable equilibria

Answer 8

An equilibrium in which there is a tendency for the equilibrium to be restored after it is disturbed by a small shock

Question 9

Unstable equilibria

Answer 9

An equilibrium such that, if a shock disturbs the equilibrium, there is a subsequent tendency to move even further away from the equilibrium

Question 10

Secondary labour market

Answer 10

Workers typically on short-term contracts with limited wages and job security, potentially due to age, or discrimination by race or ethnic group.

Question 11

Dynamic (disequilibrium) economic rents

Answer 11

An economic variable may change either because the things that determine it’s equilibrium value have changed (an equilibrium process), or because the system is not in equilibrium so that there exist forces for change that are internal to the model in question.

Question 12

Stationary (equilibrium) economic rents

Answer 12

Rent in a market that is in equilibrium. Also known as persistent rents.