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Lambs Lay a Golden Egg

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Lambs lay a golden egg

Question # 1Assume that the market for lamb is perfectly competitive. Using an appropriate model (or models) illustrate and explain
a. How a competitive market arrives at equilibrium.
b. Why the price of lamb has risen?

Answer # 1
a. Competitive Market:-
A competitive market is the one in which the prices are free to vary according to the demand and supply, using the ceteris paribus or ‘all other things being equal’ assumption.
By assuming all things being equal, there is an inverse relationship between price and quantity for demand and direct relationship for supply.
People buy more when the prices fall, since consumption is subject to diminishing marginal utility that is why consumers buy additional units only if price is reduced and also at a lower price consumers can afford to buy more of a product without giving up other goods or buying the substitutes.
Whereas, as the price of a good or service rises, producers will increase the quantity supplied, and as the price falls, producers decrease the quantity supplied. Price is revenue to a producer therefore, as prices rise producers produce more to get more revenue and in some cases increase in production causes rise in the price of inputs, particularly those whose supply cannot be readily increased. Therefore, Consumers’’ willingness to buy is captured via a down-sloping demand curve and for producers an up-sloping supply curve.
Equilibrium:-
The point of intersection of the demand curve for consumers and the supply curve for producers, when placed together in one model, determines the equilibrium in the market.
The equilibrium price is the only price that is simultaneously on both the demand and the supply curve. This signifies that it is the only price that simultaneously maximises consumer satisfaction and producers’ profits. As the word equilibrium means in balance or at

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