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Microeconomics Market Theory Essay Sample

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Microeconomics Market Theory Essay Sample

Theory of Market Demand: The quantities of a product that people are willing and able to purchase at various prices during some specific time period, ceteris peribus. 1 QxD = f(Px, ad, income (normal good, inferior good), Pother (substitutes, complements), consumer expectation, regulations, number of buyers,……) . All factors except Px either shift or rotate the Demand for good x. Therefore, the linear demand function for good x is written as QxD = α – βPx or, Px = a – bQxD Consumer Surplus (≥ 0 in a free market): technically it is the area below a demand curve and above the market price. Px

It tells us that consumers in the market for good x are willing to pay the company(s) this much more (Consumer Surplus) of extra money.

Demand is a function (a series of quantity demanded for various prices). Therefore, when price changes, there is no change in demand (when price changes, quantity demanded changes, not demand).

Supply:

The quantities of a product that firms are willing and able to offer

at various prices during some specific time period, ceteris peribus. 2 QxS = g(Px, input prices, technology, regulations, number of firms, producers’ expectation about the future, ….). All factors except Px either shift or rotate the Supply for good x. Therefore, the linear demand function for good x is written as QxS = γ + δPx or, Px = c + dQxS Producer Surplus: technically it is the area below the market price and above a supply curve.
Px

Sx Px*

Qx* much of extra discount.

Qx

It tells us that firms in the market for good x are willing to give this

Market Equilibrium: PB (buyers are willing and able to pay) = PS (sellers are willing and able to accept) QB (~ are willing and able to purchase) = QS (~ are willing and able to produce)

Like demand, supply is also a function (a series of quantity supplied for various prices). Therefore, when price changes, there is no change in supply (when price changes, quantity supplied changes, not supply).

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