...MARKET EQUILIBRATION PROCESS ABSTRACT Market Equilibrium is a very important topic people face daily in economy. Understanding how market equilibrium is maintained is essential for business managers. This paper will explain the market equilibrating process. It will include the law of demand and determinants of demand; law of supply and determinants of supply. It will also include examples to better present the topic of surplus and shortage. The market of a certain product is in equilibrium when the amount offered of that product aligns with the amount needed. When demand is higher than what is being offered, businesses increase the offered quantities of their product as well the prices resulting in a decrease on demand. When the offer is higher than demand, businesses promote clearance to reduce inventory. Both scenarios show how companies tend to equilibrate price and quantities in the market. Competition among buyers and among sellers drives the price to the equilibrium price; once there, it remains unless it is subsequently disturbed by changes in demand or supply (McConnell, 2009). The law of demand implies that consumers will buy more of a product at a low price than at a high price. So, other things equal, the relationship between price and quantity demanded is negative or inverse and is graphed as a down-sloping curve. Some determinants of demand include: consumer tastes, the number of buyers in the market, consumer incomes, the prices of related...
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...Questions 1 As seen from the excel sheet we conclude that the NVP for Project 1 results in negative amounts, as a result we do not choose project 1. As for project 2 amongst the two options we will choose Project two with DR at 10% as it yields a higher NVP value. Question 2 a) What is the equilibrium price and quantity of fertilizer in an unregulated, competitive market? 6 tons per day b) What is the efficient quantity of fertilizer? 4 tons per day c) Suppose government imposes a tax equal to the marginal external cost. What is the equilibrium price paid by consumers and the equilibrium quantity after implementation of the tax? Consumers will pay $1,200 per ton, and the efficient level of output at 4 tons per day will be achieved. d) At the output level in part (6), how much is the tax per one ton? $1200 - $800 = $400 e) How much tax revenue does government collect? $400 per ton x 4 tons per day = $1,600 per day f) What is the deadweight loss borne by society if the externality is left uncorrected? (6-4)x(1,600-1,000)/2 = $600 Question 3 a) According to Coase theorem it doesn’t matter who builds the fence as long as it is less than the cost of the crop damage. However, to answer the question; the rancher builds the fence, because the cost of the fence ($100) is less than the cost of compensating the farmer for crop damage. Together, the rancher and the farmer are $200 better off ($300 crop damage less $100...
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...Market Equilibration Process Jeremiah D. Wood ECO/561 April 19, 2014 Professor John Lindvall Market Equilibration Process Economic equilibrium is defined as a condition or state in which the economic forces are at a balance. In this particular discussion, one will discuss equilibration, the process of moving between two different points that is affected by a change in demand or supply. One will cover how a specific world event, Hurricane Katrina, caused home prices in Baton Rouge, Louisiana to fluctuate between two equilibrium states. Also to be covered is how the process of said movement occurred using the behaviors of both supply firms and consumers. In the late summer of 2005, Hurricane Katrina bared down on the City of New Orleans and the surrounding areas. This storm caused a surge that caused the storm levees to break that in turn, flooded the City of New Orleans and took most of the city’s housing with it. Because of the destruction, about two hundred and fifty thousand people were relocated to nearby Baton Rouge, making it the largest city in Louisiana. Let us start the discussion by stating that the average price of a single-family home in Baton Rouge before Katrina was one hundred thirty thousand dollars, shown by point A on the graph (O'Sullivan & Sheffrin, 2002). With the explosion of the population, the average price jumped to one hundred and fifty six thousand dollars within six months, point B, and the market shrunk from three thousand six...
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...Risk in Housing Markets: An Equilibrium Approach⇤ Aurel Hizmo† NYU Stern January 30, 2012 Abstract Homeowners are overexposed to city-specific house price risk and income risks, which may be very di cult to insure against using standard financial instruments. This paper develops a micro-founded equilibrium model that transparently shows how this local uninsurable risk a↵ects individual location decisions and portfolio choices, and ultimately how it a↵ects prices in equilibrium. I estimate a version of this model using house price and wage data and provide estimates for risk premia for di↵erent cities, which imply that homes are on average about $20000 cheaper than they would be if owners were risk-neutral. This estimate is over $100000 for volatile coastal cities. Next, I simulate the model to study the e↵ects of financial innovation on equilibrium outcomes. Creating assets that hedge city-specific risks increases house prices by about 20% and productivity by about 10%. The average willingness to pay for completing the market per homeowner is between $10000 and $20000. Welfare gains come both from better risk-sharing and from more e cient sorting of households across cities. ⇤ I am deeply grateful to Patrick Bayer, Andrew Patton, and Peter Arcidiacono for their encouragement and support. I also thank Robert McMillan, Tim Bollerslev, Vish Viswanathan, Chris Timmins, Jimmy Roberts and the seminar participants at Duke Finance, the ERID Conference at Duke, Fed Board, NYU Stern...
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...list of Frequently Used Symbols and Notation A text such as Intermediate Financial Theory is, by nature, relatively notation intensive. We have adopted a strategy to minimize the notational burden within each individual chapter at the cost of being, at times, inconsistent in our use of symbols across chapters. We list here a set of symbols regularly used with their specific meaning. At times, however, we have found it more practical to use some of the listed symbols to represent a different concept. In other instances, clarity required making the symbolic representation more precise (e.g., by being more specific as to the time dimension of an interest rate). Roman Alphabet a Amount invested in the risky asset; in Chapter 14, fraction of wealth invested in the risky asset or portfolio AT Transpose of the matrix (or vector)A c Consumption; in Chapter 14 only, consumption is represented by C, while c represents ln C ck Consumption of agent k in state of nature θ θ CE Certainty equivalent CA Price of an American call option CE Price of a European call option d Dividend rate or amount ∆ Number of shares in the replicating portfolio (Chapter xx E The expectations operator ek Endowment of agent k in state of nature θ θ f Futures position (Chapter 16); pf Price of a futures contract (Chapter 16) F, G Cumulative distribution functions associated with densities: f, g Probability density functions K The strike or exercise price of an option K(˜) Kurtosis of the random variable x x ˜ L A lottery...
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...The theory of market equilibrium states that market forces tend toward a balance, or equilibrium, of price and quantity, unless an outside source intervenes to disrupt the balance (University of Phoenix, 2010). The product I will be discussing is the Apple iPhone and how it reaches its market equilibrium. Apple goes through three phases when releasing inventory to stores (through personal experience.) The first phase is to release a lot of inventory on the day of release. The second phase is slowly release inventory to keep demand up. The third phase is release enough inventory so that all stores have supplies readily available. By being strategic with the quantity of iPhones released Apple set their own market equilibrium. Demand is a schedule that shows the various amounts of a product that consumers are willing and able to buy at each specific price in a series of possible prices during a specified time period (McConnell, Brue, & Flynn, 2009). This demand on a product is greatly affected by supply, which is a schedule that shows amounts of a product a producer is willing and able to produce and sell at each specific price in a series of possible prices during a specified time period (McConnell, Brue, & Flynn, 2009). When the iPhone first releases every Apple and AT&T store receive very large amounts of inventory. Most of the customers waiting at the stores will get an iPhone, however, those that did not wait before stores hourse usually will not get a phone. The reason...
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...contended, however, that the management scientists were proposing changes with insufficient regard for relevance, timeliness, acceptance, or implementation (Zand, 1975). Identifying the Characteristics of Effective Organizational Change Psychologist Kurt Lewin theory on organizational change conceptualized the present condition or level of activity of a system as a dynamic social equilibrium, that is a state of balance maintained by active driving and resisting social forces. Change then consisted of altering the driving and resisting forces thereby facilitating the movement of the system to a new level of equilibrium (Zand, 1975). Lewin conceptualized change as a process with three phases: (1) unfreezing—behavior that increases the receptivity of the client system to a possible change in the distribution and balance of social forces; (2) moving—altering the magnitude, direction, or number of driving and resisting forces, consequently shifting the equilibrium to a new level; and (3) refreezing—reinforcing the new distribution of forces, thereby maintaining and stabilizing the new social equilibrium. Lewin also suggested that although common sense might lean toward increasing driving forces to induce change, in many instances this might arouse an equal and opposite increase in resisting forces, the net effect being no change and greater tension than before (Spector, 2010). The Situation at Asda...
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...Tournaments and Piece Rates Revisited: A Theoretical and Experimental Study of Premium Incentives Werner Guth Rene Levnsky Kerstin Pully Ori Weiselz June 22, 2010 Abstract Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on xed-prize tournaments, i.e., on tournaments where the prize or prize sum to be awarded is set in advance, we introduce a new type of tournament into the literature: premium incentives. While premium incentives, just like xed-prize tournaments, are based on relative performance, the prize to be awarded is not set in advance but is a function of the rm's success: the prize is high if the rm is successful and low if it is not successful. Relying on a simple model of cost minimization, we are able to show that premium incentives outperform xed-prize tournaments as well as piece rates. Our theoretical result is qualitatively con rmed by a controlled laboratory experiment and has important practical implications for the design of organizational incentive systems. JEL Classi cation: C72, C91, J33 Keywords: Tournaments, Incentives, Economic experiments Max Planck Institute for Economics, Kahlaische Strasse 10, 07745 Jena, Germany. yEberhard Karls Universitat Tubingen, Faculty of Economics and Business Administration, Nauklerstrasse 47, 72074 Tubingen, Germany. zThe Hebrew University, Center for the Study of Rationality, Giv'at Ram, Jerusalem 91904, Israel...
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...Market Equilibrating Process Student Name ECO/561 Date Peter Oburu Market Equilibrating Process Market equilibrium is defined as a state where the quantity supplied matches the quantity demanded (McConnell, Brue, & Flynn, 2009). In case where there is lack of equilibrium a business can be have a surplus or the buyers could face a shortage. The process in which the market adjust to the demands of market buyers and supply of market sellers is know n as the market equilibrating process. If the market price of a good or service is set above market equilibrium price, the demand will be less than the supply and the net effect will be a surplus. On the other hand, the market price of a good or service is set below the market equilibrium price, the demand will be greater than the quantity supplied and the net effect will be a shortage. For a business either of these scenarios can be detrimental, therefore it is very important that a business owner set their price at the market equilibrium, which is the ideal price for both business (suppliers) and the consumers. This paper provides an example of how the market equilibrating process works for a martini lounge. The paper proceeds as follows; first we describe ... then we highlight ... and finally we conclude that ... As the owner of a restaurant, I have to pay very close attention to pricing in an effort to ensure a steady flow of customers and to build profitability. The type of restaurant I own can be classified and...
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... | | | | | | | | | | | Price High | 20,10 | 50,0 | | | Price Low | 5, -10 | 10,0 | a) What is the Nash equilibrium of this game? 20,10 is the Nash Equilibrium because when monopolist keeps its price high that is when the game is at the Nash equilibrium. b) Is the monopolist's threat to charge a low price credible? That is, if the entrant has come, would it make sense for the monopolist to charge a low price? Explain. - No, it would not be a creditable decision to charge a lower price as lowering the price results in less profit for monopolist. If decision is made to change the price Entrant and Monopolist would no longer be in Nash equilibrium as a change would lower Monopolist’s profit in result in a loss for...
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...Contemporary Theories Summary of Solow model * Convergence because high returns to capital at low levels of capital * When capital stock is low, huge positive returns to capital but this is not true at very high levels of capital. * Less and less returns at high level of capital * Growth comes naturally from perfect competitive markets * There is no need to do anything. If you are on the left hand side of k*, the economy will grow. * True only for perfect competitive markets meaning * If needed human capital is available at any scale and quantity (no role for human capital in the Solow model though because we always divide everything by population) * There is a possibility of technology transfer * Government provides essential services * No need for development policy * Because again a country grows naturally if it’s on the left of k* and all countries converge to the same point But no evidence of convergence * Regressions: yes, but shaky * There was evidence of regressions, initial wealth was negatively related to GDP growth but we saw that the regressions were subject to many problems like OVB, reverse causality * Historical growth 1960-1990 * World: 1.7% (double after 43 years) * East Asia: 3.3% (double after 23 years) * South Asia: 1.9% (double after 38 years) * Sub-Saharan Africa: 0.2% (double after 348 years) Difference between OECD and rest of the world: * Convergence...
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...PHIL 2001: Homework 1 1. Explain the Hobbesian state of nature and why life is solitary, poor, nasty, brutish and short"? Provide a short (1-2 paragraph) critique of this view. The Hobbesian state of nature is how Hobbes believe mankind would operate without any form of government. This state of nature is incredibly tumultuous, dangerous, and volatile. In Hobbes opinion, humans are naturally prone to conflict. Hobbes also believes that humans are all created equal both intellectually and physically, which contributes to this conflict. Since they are all equal, no one possess enough power to keep them in “awe”. It is for these reasons that Hobbes believes life is “solitary, poor, nasty, brutish and short”. I disagree with Hobbes regarding his ideas that everything a man does benefits himself in some way. We can see this time and time again in human nature. A great example of this is when people donate a kidney to a loved one. They gain nothing from this, but are still more than willing to do it. This selflessness is so engrained in us, it can even be seen in our movies and TV shows. The classic scene where someone jumps in front of a bullet to save their friend has been acted out hundreds of times. Another point of contention I have with Hobbe’s view of the state of nature, is his idea that a strong ruler must exist to swiftly punish those who defect from the state. I favor Rousseau’s view that this harsh ruler is not necessary because people will not naturally want to defect...
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...Information k = units of Capital l = units of Labour rK = Cost of Capital in dollars = $20 wL = Labour cost in dollars = $10 Output: Q=K^(1/4) √L Solution Min: C_((K,L))=r_K .k+ w_L .l=20k+10l Constraint: Q=k^(1/4) √l Using Lagrangian method L_((k,l,λ))=20k+10l- λ(k^(1/4) .l^(1/2)-Q) dL/dk=20- 1/4 λk^(-3/4) .l^(1/2)=0 dL/dl=10- 1/2 λk^(1/4) .l^(-1/2)=0 dL/dλ=- 1/4 λk^(1/4) .l^(1/2)-Q=0 Equating 20- 1/4 λk^(-3/4) .l^(1/2)= 0 20= 1/4 λk^(-3/4) .l^(1/2) λ= (80k^(3/4))/l^(1/2) 10- 1/2 λk^(1/4) .l^(-1/2)=0 10= 1/2 λk^(1/4) .l^(-1/2) λ= (20l^(1/2))/k^(1/4) (80k^(3/4))/l^(1/2) = (20l^(1/2))/k^(1/4) 80k=20l 4k=l Substituting Lagrangian relation into Output equation Q=K^(1/4) √L Q=k^(1/4) 〖(4k)〗^(1/2) Q=k^(1/4) 〖2k〗^(1/2) Q/2=k^(3/4) k= Q^(4/3)/2^(4/3) = Q^(4/3)/∛16= Q^(4/3)/(2∛2) Solving for l 4k=l 2^2 (Q^(4/3)/2^(4/3) )=l l= Q^(4/3)/2^(2/3) = Q^(4/3)/∛4 Minimum total expenditure on capital and labour in terms of Q C_((K,L))=20k+10l C_((K,L) )=2^2.5.(Q^(4/3)/2^(4/3) )+10(Q^(4/3)/2^(2/3) ) C_((K,L) )= (5Q^(4/3)+10Q^(4/3))/2^(2/3) = 〖15Q〗^(4/3)/2^(2/3) = 〖2^2.5.Q〗^(4/3)/2^(2/3) = (5Q^(4/3))/∛2 Information x denotes units of good X y denotes units of good Y Cx denotes the unit cost of good X in dollars = $1 Cy denotes the unit cost of good Y in dollars = $1 0 < β < 1 M denotes the maximum...
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...CAE 3 a) As we have to find the market equilibrium we must equal both functions. P=500-0’1QD P=500-0’1QD P=50+0’05QS 500=0’1QD 500-0’1Q=50+0’05Q Q= 500/0’1 -3/20Q= -450 QD=5000 Q=-450/(-3/20); QE=3000 P=500-0’1·3000 PE=200 (Graphically represented in the end) b) ԐPD=-(P/Q)· Variation ԐPD=-200/3000· (-10) ԐPD=2/3 ԐPS=-(P/Q)· Variation ԐPS=-200/3000· (-20) ԐPS=4/3 c) The first situation the government proposes is to fix a Price floor of 100€. Todos los derechos reservados Unybook Worldwide S.L. © unybook.com P=500-0’1QD P=50+0’05QS 100=500-0’1QD 100=50+0’05QS -400/-0’1=QD 50/0’05=QS QD=4000 QS=1000 QD-QS=4000-1000=3000 so it’s a shortage. The next situation the government proposes is to fix a Price floor of 300€. P=500-0’1QD P=50+0’05QS 300=500-0’1QD 300=50+0’05QS -200/-0’1=QD 250/0’05=QS QD=2000 QS=5000 QD-QS=2000-5000=-3000 so it’s a surplus. The next situation the government proposes is to fix a Price ceiling of 100€. P=500-0’1QD P=50+0’05QS 100=500-0’1QD 100=50+0’05QS -400/-0’1=QD 50/0’05=QS QD=4000 QS=1000 QD-QS=4000-1000=3000 so it’s a surplus. The next situation the government proposes is to fix a Price ceiling of 300€. P=500-0’1QD P=50+0’05QS 300=500-0’1QD 300=50+0’05QS -200/-0’1=QD 250/0’05=QS QD=2000 QS=5000 QD-QS=2000-5000=-3000 so it’s a shortage. Todos los derechos reservados Unybook Worldwide S.L. © unybook.com ...
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...Situations economists and mathematicians call games psychologists call social situations. While game theory has applications to "games" such as poker and chess, it is the social situations that are the core of modern research in game theory. Game theory has two main branches: Non-cooperative game theory models a social situation by specifying the options, incentives and information of the "players" and attempts to determine how they will play. Cooperative game theory focuses on the formation of coalitions and studies social situations axiomatically. This article will focus on non-cooperative game theory. Game theory starts from a description of the game. There are two distinct but related ways of describing a game mathematically. The extensive form is the most detailed way of describing a game. It describes play by means of a game tree that explicitly indicates when players move, which moves are available, and what they know about the moves of other players and nature when they move. Most important it specifies the payoffs that players receive at the end of the game. Strategies Fundamental to game theory is the notion of a strategy. A strategy is a set of instructions that a player could give to a friend or program on a computer so that the friend or computer could play the game on her behalf. Generally, strategies are contingent responses: in the game of chess, for example, a strategy should specify how to play for every possible arrangement of pieces on the board. An alternative...
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