Week 10

Question 1

What does WTP and WTA stand for?

Answer 1

Willingness to Pay and Willingness to Accept

Question 2

What type of equilibirum is it when there are lots of buyers and sellers, all acting as price takers, selling identical goods?

Answer 2

Competitive equilibrium = A type of Nash equilibrium

Question 3

What are the gains from trade?

Answer 3

Consumer and producer surpluses

Question 4

What is disequilibrium rent?

Answer 4

The rent that arises when a market is not in equilibrium

Question 5

Kinked demand curve - Cartel Oligopoly

Question 6

What are the characteristics of competitive equilibrium?

Answer 6

All transactions take place at the same price -> ‘The Law of One Price’

The market clears

All participants are price-takers

Question 7

What are the conditions for competitive equilibrium to occur?

Answer 7

Same as perfect competition

Many buyers and sellers, all acting independently

Homogeneous goods

All the buyers and sellers are aware of the prices at which others are trading

Buyers and sellers always seek the best price available

Question 8

Imposition of tax on diagrams

Question 9

Imposition of price ceilings on diagrams

Question 10

Market failures, positive and negative externalities in production

Question 11

MPC and MSC charts

Question 12

Solutions to market failure