nicholson微观经济理论（答案+ppt+习题库）-140-03-033593-0

THEPARTIALEQUILIBRIUMCOMPETITIVEMODELINTHISCHAPTERWEDESCRIBETHEFAMILIARMODELOFPRICEDETERMINATIONUNDERPERFECTCOMPETITIONORIGINALLYDEVELOPEDBYALFREDMARSHALLINTHELATENINETEENTHCENTURYTHATIS,WEPROVIDEAFAIRLYCOMPLETEANALYSISOFTHESUPPLYDEMANDMECHANISMASITAPPLIESTOASINGLEMARKETTHISISPERHAPSTHEMOSTWIDELYUSEDMODELFORTHESTUDYOFPRICEDETERMINATION14CHAPTERTIMINGOFTHESUPPLYRESPONSEINTHEANALYSISOFCOMPETITIVEPRICING,ITISIMPORTANTTODECIDETHELENGTHOFTIMETOBEALLOWEDFORASUPPLYRESPONSETOCHANGINGDEMANDCONDITIONSTHEESTABLISHMENTOFEQUILIBRIUMPRICESWILLBEDIFFERENTIFWEARETALKINGABOUTAVERYSHORTPERIODOFTIMEDURINGWHICHMOSTINPUTSAREXEDORIFWEAREENVISIONINGAVERYLONGRUNPROCESSINWHICHITISPOSSIBLEFORNEWRMSTOENTERANINDUSTRYFORTHISREASON,ITHASBEENTRADITIONALINECONOMICSTODISCUSSPRICINGINTHREEDIFFERENTTIMEPERIODS1VERYSHORTRUN,2SHORTRUN,AND3LONGRUNALTHOUGHITISNOTPOSSIBLETOGIVETHESETERMSANEXACTCHRONOLOGICALDENITION,THEESSENTIALDISTINCTIONBEINGMADECONCERNSTHENATUREOFTHESUPPLYRESPONSETHATISASSUMEDTOBEPOSSIBLEINTHEVERYSHORTRUN,THEREISNOSUPPLYRESPONSEQUANTITYSUPPLIEDISXEDANDDOESNOTRESPONDTOCHANGESINDEMANDINTHESHORTRUN,EXISTINGRMSMAYCHANGETHEQUANTITYTHEYARESUPPLYING,BUTNONEWRMSCANENTERTHEINDUSTRYINTHELONGRUN,NEWRMSMAYENTERANINDUSTRY,THEREBYPRODUCINGAVERYEXIBLESUPPLYRESPONSEINTHISCHAPTERWEWILLDISCUSSEACHOFTHESEPOSSIBILITIESPRICINGINTHEVERYSHORTRUNINTHEVERYSHORTRUN,ORTHEMARKETPERIOD,THEREISNOSUPPLYRESPONSETHEGOODSAREALREADY“IN”THEMARKETPLACEANDMUSTBESOLDFORWHATEVERTHEMARKETWILLBEARINTHISSITUATION,PRICEACTSONLYASADEVICETORATIONDEMANDPRICEWILLADJUSTTOCLEARTHEMARKETOFTHEQUANTITYTHATMUSTBESOLDDURINGTHEPERIODALTHOUGHTHEMARKETPRICEMAYACTASASIGNALTOPRODUCERSINFUTUREPERIODS,ITDOESNOTPERFORMSUCHAFUNCTIONINTHECURRENTPERIODBECAUSECURRENTPERIODOUTPUTISXEDFIGURE141DEPICTSTHISSITUATIONMARKETDEMANDISREPRESENTEDBYTHECURVEDSUPPLYISXEDATQ,ANDTHEPRICETHATCLEARSTHEMARKETISP1ATP1INDIVIDUALSAREWILLINGTOTAKEALLTHATISOFFEREDINTHEMARKETSELLERSWANTTODISPOSEOFQWITHOUTREGARDTOPRICESUPPOSETHATTHEGOODINQUESTIONISPERISHABLEANDWILLBEWORTHLESSIFITISNOTSOLDINTHEVERYSHORTRUNHENCE,P1,QISANEQUILIBRIUMPRICEQUANTITYCOMBINATIONIFDEMANDSHOULDSHIFTTODH11032,THEEQUILIBRIUMPRICEWOULDINCREASETOP2,BUTQWOULDSTAYXEDBECAUSENOSUPPLYRESPONSEISPOSSIBLETHESUPPLYCURVEINTHISSITUATION,THEN,ISAVERTICALSTRAIGHTLINEATOUTPUTQTHEANALYSISOFTHEVERYSHORTRUNISNOTPARTICULARLYUSEFULFORMANYMARKETSSUCHATHEORYMAYADEQUATELYREPRESENTSOMESITUATIONSINWHICHGOODSAREPERISHABLEORMUSTBESOLDONAGIVENDAY,ASISTHECASEINAUCTIONSINDEED,THESTUDYOFAUCTIONSPROVIDESANUMBEROFINSIGHTSABOUTTHEINFORMATIONALPROBLEMSINVOLVEDINARRIVINGATEQUILIBRIUMPRICES,WHICHWETAKEUPINCHAPTERS17AND20BUTAUCTIONSAREUNUSUALINTHATSUPPLYISXEDTHEFARMOREUSUALCASEINVOLVESSOMEDEGREEOFSUPPLYRESPONSETOCHANGINGDEMANDITISPRESUMEDTHATARISEINPRICEWILLBRINGADDITIONALQUANTITYINTOTHEMARKETINTHEREMAINDEROFTHISCHAPTER,WESHALLEXAMINETHISPROCESSBEFOREBEGINNINGOURANALYSIS,WESHOULDNOTETHATINCREASESINQUANTITYSUPPLIEDNEEDNOTCOMEONLYFROMINCREASEDPRODUCTIONINAWORLDINWHICHSOMEGOODSAREDURABLETHATIS,LASTLONGERTHANASINGLEPERIOD,CURRENTOWNERSOFTHESEGOODSMAYSUPPLYTHEMININCREASINGAMOUNTSTOTHEMARKETASPRICERISESFOREXAMPLE,EVENTHOUGHTHESUPPLYOFREMBRANDTSISXED,WEWOULDNOTWANTTODRAWTHE368PARTVPERFECTCOMPETITIONMARKETSUPPLYCURVEFORTHESEPAINTINGSASAVERTICALLINE,SUCHASTHATSHOWNINFIGURE141ASTHEPRICEOFREMBRANDTSRISES,INDIVIDUALSANDMUSEUMSWILLBECOMEINCREASINGLYWILLINGTOPARTWITHTHEMFROMAMARKETPOINTOFVIEW,THEREFORE,THESUPPLYCURVEFORREMBRANDTSWILLHAVEANUPWARDSLOPE,EVENTHOUGHNONEWPRODUCTIONTAKESPLACEASIMILARANALYSISWOULDFOLLOWFORMANYTYPESOFDURABLEGOODS,SUCHASANTIQUES,USEDCARS,BACKISSUESOFTHENATIONALGEOGRAPHIC,ORCORPORATESHARES,ALLOFWHICHAREINNOMINALLY“XED”SUPPLYBECAUSEWEAREMOREINTERESTEDINEXAMININGHOWDEMANDANDPRODUCTIONARERELATED,WESHALLNOTANALYZETHOSECASESWHICHMAYINVOLVECOMPLEXQUESTIONSABOUTSUPPLIERBEHAVIOROVERTIMEINDETAILSHORTRUNPRICEDETERMINATIONINSHORTRUNANALYSISTHENUMBEROFRMSINANINDUSTRYISXEDTHESERMSAREABLETOADJUSTTHEQUANTITYTHEYAREPRODUCINGINRESPONSETOCHANGINGCONDITIONSTHEYWILLDOTHISBYALTERINGLEVELSOFEMPLOYMENTFORTHOSEINPUTSTHATCANBEVARIEDINTHESHORTRUN,ANDWESHALLINVESTIGATETHISSUPPLYDECISIONHEREBEFOREBEGINNINGTHEANALYSIS,WESHOULDPERHAPSSTATEEXPLICITLYTHEASSUMPTIONSOFTHISPERFECTLYCOMPETITIVEMODELCHAPTER14THEPARTIALEQUILIBRIUMCOMPETITIVEMODEL369PRICINGINTHEVERYSHORTRUNWHENQUANTITYISXEDINTHEVERYSHORTRUN,PRICEACTSONLYASADEVICETORATIONDEMANDWITHQUANTITYXEDATQ,PRICEP1WILLPREVAILINTHEMARKETPLACEIFDISTHEMARKETDEMANDCURVEATTHISPRICE,INDIVIDUALSAREWILLINGTOCONSUMEEXACTLYTHATQUANTITYAVAILABLEIFDEMANDSHOULDSHIFTUPWARDTODH11032,THEEQUILIBRIUMMARKETPRICEWOULDRISETOP2PRICEQUANTITYPERPERIODQP1P2SSDDDH11032DH11032FIGURE141PERFECTCOMPETITIONAPERFECTLYCOMPETITIVEINDUSTRYISONETHATOBEYSTHEFOLLOWINGASSUMPTIONS1THEREAREALARGENUMBEROFRMS,EACHPRODUCINGTHESAMEHOMOGENEOUSPRODUCT2EACHRMATTEMPTSTOMAXIMIZEPROTS3EACHRMISAPRICETAKERITASSUMESTHATITSACTIONSHAVENOEFFECTONMARKETPRICE4PRICESAREASSUMEDTOBEKNOWNBYALLMARKETPARTICIPANTSINFORMATIONISPERFECT5TRANSACTIONSARECOSTLESSBUYERSANDSELLERSINCURNOCOSTSINMAKINGEXCHANGESFORMOREONTHISANDTHEPREVIOUSASSUMPTION,SEECHAPTER17NOWWEWILLMAKEUSEOFTHESEASSUMPTIONSTOSTUDYPRICEDETERMINATIONINTHESHORTRUNSHORTRUNMARKETSUPPLYCURVEINCHAPTER13WESHOWEDHOWTOCONSTRUCTTHESHORTRUNSUPPLYCURVEFORASINGLEPROTMAXIMIZINGRMTOCONSTRUCTAMARKETSUPPLYCURVE,WESTARTBYRECOGNIZINGTHATTHEQUANTITYOFOUTPUTSUPPLIEDTOTHEENTIREMARKETINTHESHORTRUNISSIMPLYTHESUMOFTHEQUANTITIESSUPPLIEDBYEACHRMBECAUSEEACHRMUSESTHESAMEMARKETPRICETODETERMINEHOWMUCHTOPRODUCE,THETOTALAMOUNTSUPPLIEDTOTHEMARKETBYALLRMSWILLOBVIOUSLYDEPENDONPRICETHISRELATIONSHIPBETWEENPRICEANDQUANTITYSUPPLIEDISCALLEDASHORTRUNMARKETSUPPLYCURVEFIGURE142ILLUSTRATESDEFINITION370PARTVPERFECTCOMPETITIONSHORTRUNMARKETSUPPLYCURVETHESUPPLYMARGINALCOSTCURVESOFTWORMSARESHOWNINAANDBTHEMARKETSUPPLYCURVECISTHEHORIZONTALSUMOFTHESECURVESFOREXAMPLE,ATP1RMASUPPLIESQA1,RMBSUPPLIESQB1,ANDTOTALMARKETSUPPLYISGIVENBYQ1H11005QA1H11001QB1AFIRMABFIRMBCTHEMARKETTOTALOUTPUTPERPERIODPPPP1SSASBQ1QAQB1QA1QBFIGURE142THECONSTRUCTIONOFTHECURVEFORSIMPLICITYASSUMETHEREAREONLYTWORMS,AANDBTHESHORTRUNSUPPLYTHATIS,MARGINALCOSTCURVESFORRMSAANDBARESHOWNINFIGURES142AAND142BTHEMARKETSUPPLYCURVESHOWNINFIGURE142CISTHEHORIZONTALSUMOFTHESETWOCURVESFOREXAMPLE,ATAPRICEOFP1,RMAISWILLINGTOSUPPLYQA1,ANDRMBISWILLINGTOSUPPLYQB1THEREFORE,ATTHISPRICETHETOTALSUPPLYINTHEMARKETISGIVENBYQ1,WHICHISEQUALTOQA1H11001QB1THEOTHERPOINTSONTHECURVEARECONSTRUCTEDINANIDENTICALWAYBECAUSEEACHRMSSUPPLYCURVEHASAPOSITIVESLOPE,THEMARKETSUPPLYCURVEWILLALSOHAVEAPOSITIVESLOPETHEPOSITIVESLOPEREECTSTHEFACTTHATSHORTRUNMARGINALCOSTSINCREASEASRMSATTEMPTTOINCREASETHEIROUTPUTSSHORTRUNMARKETSUPPLYMOREGENERALLY,IFWELETQIP,V,WREPRESENTTHESHORTRUNSUPPLYFUNCTIONFOREACHOFTHENRMSINTHEINDUSTRY,WECANDENETHESHORTRUNMARKETSUPPLYFUNCTIONASFOLLOWSSHORTRUNMARKETSUPPLYFUNCTIONTHESHORTRUNMARKETSUPPLYFUNCTIONSHOWSTOTALQUANTITYSUPPLIEDBYEACHRMTOAMARKETQSP,V,WH11005H20913NIH110051QIP,V,W141NOTICETHATTHERMSINTHEINDUSTRYAREASSUMEDTOFACETHESAMEMARKETPRICEANDTHESAMEPRICESFORINPUTS1THESHORTRUNMARKETSUPPLYCURVESHOWSTHETWODIMENSIONALRELATIONSHIPBETWEENQANDP,HOLDINGVANDWANDEACHRMSUNDERLYINGTECHNOLOGYCONSTANTTHENOTATIONMAKESCLEARTHATIFV,W,ORTECHNOLOGYWERETOCHANGE,THESUPPLYCURVEWOULDSHIFTTOANEWLOCATIONSHORTRUNSUPPLYELASTICITYONEWAYOFSUMMARIZINGTHERESPONSIVENESSOFTHEOUTPUTOFRMSINANINDUSTRYTOHIGHERPRICESISBYTHESHORTRUNSUPPLYELASTICITYTHISMEASURESHOWSHOWPROPORTIONALCHANGESINMARKETPRICEAREMETBYCHANGESINTOTALOUTPUTCONSISTENTWITHTHEELASTICITYCONCEPTSDEVELOPEDINCHAPTER7,THISISDENEDASFOLLOWSSHORTRUNELASTICITYOFSUPPLYES,PES,PH11005H11005H11080142PH5007QSH11128QSH5007H11128PPERCENTAGECHANGEINQSUPPLIEDH5007H5007H5007H5007PERCENTAGECHANGEINPDEFINITIONDEFINITIONCHAPTER14THEPARTIALEQUILIBRIUMCOMPETITIVEMODEL3711LATERINTHISCHAPTERWESHOWHOWTHISASSUMPTIONCANBERELAXEDBECAUSEQUANTITYSUPPLIEDISANINCREASINGFUNCTIONOFPRICEH11128QS/H11128PH110220,THESUPPLYELASTICITYISPOSITIVEHIGHVALUESFORES,PIMPLYTHATSMALLINCREASESINMARKETPRICELEADTOARELATIVELYLARGESUPPLYRESPONSEBYRMS,BECAUSEMARGINALCOSTSDONOTRISESTEEPLYANDINPUTPRICEINTERACTIONEFFECTSARESMALLALTERNATIVELY,ALOWVALUEFORES,PIMPLIESTHATITTAKESRELATIVELYLARGECHANGESINPRICETOINDUCERMSTOCHANGETHEIROUTPUTLEVELS,BECAUSEMARGINALCOSTSRISERAPIDLYNOTICETHAT,ASFORALLELASTICITYNOTIONS,COMPUTATIONOFES,PREQUIRESTHATINPUTPRICESANDTECHNOLOGYBEHELDCONSTANTITALSOREQUIRESTHATALLRMSFACETHESAMEPRICEFORTHEIROUTPUTEXAMPLE141ASHORTRUNSUPPLYFUNCTIONINCHAPTER12WECOMPUTEDHAMBURGERHEAVENSSHORTRUNTOTALCOSTFUNCTIONASSTCH110054VH11001,143ANDINCHAPTER13WEUSEDTHESHORTRUNMARGINALCOSTFUNCTIONTOCONSTRUCTTHERMSSHORTRUNSUPPLYCURVEBYEQUATINGPRICETOSMCPH11005SMCH11005144ANDSOLVINGFORQQH11005145FORTHECASEWH110054,THISRESULTEDINASIMPLELINEARSUPPLYFUNCTIONOFTHEFORMQH1100550P146NOW,ASSUMETHEREARE100IDENTICALHAMBURGEREMPORIAINAPARTICULARCITYANDLETEACHRMSHOURLYOUTPUTBEDENOTEDASQIIH110051,100THESUPPLYFUNCTIONFOREACHRMISNOWQIH1100550PIH110051,100147HEREWEHAVEIMPLICITLYASSUMEDTHATEACHRMSELLSITSOUTPUTATTHESAMEPRICETHISREECTSTHE“LAWOFONEPRICE”INCOMPETITIVEMARKETSTHEMARKETSUPPLYFUNCTIONISGIVENBYQSH11005H20913100IH110051QIH11005100H1108050PH110055,000P,148WHEREQSISTHETOTALQUANTITYSUPPLIEDTOTHEMARKETASAFUNCTIONOFMARKETPRICE,PNOTICETHATIFTHEWAGEWERETORISETOWH110055,EACHRMSSUPPLYFUNCTIONWOULDBEGIVENBYQIH1100540P,149ANDTHEMARKETSUPPLYFUNCTIONWOULDBEGIVENBYQSH11005H20913QIH110054,000P1410ATEACHPRICE,FEWERHAMBURGERSWOULDNOWBESUPPLIEDTHERISEINWAGESHASSHIFTEDTHESUPPLYCURVEUPWARD200PH5007W2WQH5007400WQ2H5007400372PARTVPERFECTCOMPETITIONELASTICITYOFSUPPLYHEREITISASIMPLEMATTERTOCOMPUTETHESHORTRUNELASTICITYOFSUPPLYBECAUSEFORWH110054ES,PH11005H11080H110055,000H11080H11005H110051,1411THESHORTRUNSUPPLYCURVEISUNITELASTICASMIGHTALSOHAVEBEENCOMPUTEDBYNOTINGTHEUNITARYEXPONENTFORPRICEINTHESUPPLYFUNCTIONFORPH110051,QSH110055,000WHEREASFORPH11005110,QSH110055,500A10PERCENTINCREASEINPRICERESULTSINA10PERCENTINCREASEINQUANTITYSUPPLIEDQUERYWHYDOESNTTHEELASTICITYOFSUPPLYDEPENDONTHEWAGEINTHISPROBLEMUNDERWHATCIRCUMSTANCESWOULDTHEREBESUCHADEPENDENCEEQUILIBRIUMPRICEDETERMINATIONWEARENOWREADYTOCOMBINEDEMANDANDSUPPLYCURVESTODEMONSTRATETHEESTABLISHMENTOFEQUILIBRIUMPRICESINTHEMARKETFIGURE143SHOWSTHISPROCESSLOOKINGRSTATFIGURE143B,WESEETHEMARKETDEMANDCURVEDIGNOREDH11032FORTHEMOMENTANDTHESHORTRUNSUPPLYCURVESTHETWOCURVESINTERSECTATAPRICEOFP1ANDAQUANTITYOFQ1THISPRICEQUANTITYCOMBINATIONREPRESENTSANEQUILIBRIUM5,000PH50075,000PPH5007QSPH5007QSH11128QSH5007H11128PCHAPTER14THEPARTIALEQUILIBRIUMCOMPETITIVEMODEL373INTERACTIONSOFMANYINDIVIDUALSANDFIRMSDETERMINEMARKETPRICEINTHESHORTRUNMARKETDEMANDCURVESANDMARKETSUPPLYCURVESAREEACHTHEHORIZONTALSUMOFNUMEROUSCOMPONENTSTHESEMARKETCURVESARESHOWNINBONCEPRICEISDETERMINEDINTHEMARKET,EACHRMANDEACHINDIVIDUALTREATTHISPRICEASAXEDPARAMETERINTHEIRDECISIONSALTHOUGHINDIVIDUALRMSANDPERSONSAREIMPORTANTINDETERMININGPRICE,THEIRINTERACTIONASAWHOLEISTHESOLEDETERMINANTOFPRICETHISISILLUSTRATEDBYASHIFTINANINDIVIDUALSDEMANDCURVETODH11032IFONLYONEINDIVIDUALREACTSINTHISWAY,MARKETPRICEWILLNOTBEAFFECTEDHOWEVER,IFEVERYONEEXHIBITSANINCREASEDDEMAND,MARKETDEMANDWILLSHIFTTODH11032INTHESHORTRUN,PRICEWILLRISETOP2PRICEPRICEPRICEOUTPUTPERPERIODTOTALOUTPUTPERPERIODQUANTITYDEMANDEDPERPERIODAATYPICALFIRMBTHEMARKETCATYPICALINDIVIDUALP1P2Q2Q1Q1Q2DH11032DDSDH11032DH11032DDDH11032SMCSATCQ1H11002Q2H11002Q1H11002H11032FIGURE143BETWEENTHEDEMANDSOFINDIVIDUALSANDTHECOSTSOFRMSTHEEQUILIBRIUMPRICEP1SERVESTWOIMPORTANTFUNCTIONSFIRST,THISPRICEACTSASASIGNALTOPRODUCERSBYPROVIDINGTHEMWITHINFORMATIONWITHWHICHTODECIDEHOWMUCHSHOULDBEPRODUCEDINORDERTOMAXIMIZEPROTS,RMSWILLPRODUCETHATOUTPUTLEVELFORWHICHMARGINALCOSTSAREEQUALTOP1INTHEAGGREGATE,THEN,PRODUCTIONWILLBEQ1ASECONDFUNCTIONOFTHEPRICEISTORATIONDEMANDGIVENTHEMARKETPRICEP1,UTILITYMAXIMIZINGINDIVIDUALSWILLDECIDEHOWMUCHOFTHEIRLIMITEDINCOMESTODEVOTETOBUYINGTHEPARTICULARGOODATAPRICEOFP1,TOTALQUANTITYDEMANDEDWILLBEQ1,ANDTHISISPRECISELYTHEAMOUNTTHATWILLBEPRODUCEDHENCEWEDENEEQUILIBRIUMPRICEASFOLLOWSEQUILIBRIUMPRICEANEQUILIBRIUMPRICEISONEATWHICHQUANTITYDEMANDEDISEQUALTOQUANTITYSUPPLIEDATSUCHAPRICE,NEITHERDEMANDERSNORSUPPLIERSHAVEANINCENTIVETOALTERTHEIRECONOMICDECISIONSMATHEMATICALLY,ANEQUILIBRIUMPRICE,P,SOLVESTHEEQUATIONQDP,PH11032,IH11005QSP,V,W1412OR,MORECOMPACTLY,QDPH11005QSP1413THEDENITIONGIVENINEQUATION1412MAKESCLEARTHATANEQUILIBRIUMPRICEDEPENDSONTHEVALUESOFMANYEXOGENOUSFACTORS,SUCHASINCOMESORPRICESOFOTHERGOODSANDOFRMSINPUTSASWEWILLSEEINTHENEXTSECTION,CHANGESINANYOFTHESEFACTORSWILLLIKELYRESULTINACHANGEINTHEEQUILIBRIUMPRICEREQUIREDTOEQUATEQUANTITYSUPPLIEDTOQUANTITYDEMANDEDTHEIMPLICATIONSOFTHEEQUILIBRIUMPRICEP1FORATYPICALRMANDATYPICALINDIVIDUALARESHOWNINFIGURES143AAND143C,RESPECTIVELYFORTHETYPICALRMTHEPRICEP1WILLCAUSEANOUTPUTLEVELOFQ1TOBEPRODUCEDTHERMEARNSASMALLPROTATTHISPARTICULARPRICEBECAUSESHORTRUNAVERAGETOTALCOSTSARECOVEREDTHEDEMANDCURVEDIGNOREDH11032FORTHEMOMENTFORATYPICALINDIVIDUALISSHOWNINFIGURE143CATAPRICEOFP1,THISINDIVIDUALDEMANDSQH335261BYADDINGUPTHEQUANTITIESTHATEACHINDIVIDUALDEMANDSATP1ANDTHEQUANTITIESTHATEACHRMSUPPLIES,WECANSEETHATTHEMARKETISINEQUILIBRIUMTHEMARKETSUPPLYANDDEMANDCURVESPROVIDEACONVENIENTWAYOFMAKINGSUCHASUMMATIONMARKETREACTIONTOASHIFTINDEMANDTHETHREEPANELSINFIGURE143CANBEUSEDTOSHOWTWOIMPORTANTFACTSABOUTSHORTRUNMARKETEQUILIBRIUMTHEINDIVIDUALS“IMPOTENCE”INTHEMARKETANDTHENATUREOFSHORTRUNSUPPLYRESPONSEFIRST,SUPPOSETHATASINGLEINDIVIDUALSDEMANDCURVEWERETOSHIFTOUTWARDTODH11032,ASSHOWNINFIGURE143CBECAUSETHECOMPETITIVEMODELASSUMESTHEREAREMANYDEMANDERS,THISSHIFTWILLHAVEPRACTICALLYNOEFFECTONTHEMARKETDEMANDCURVECONSEQUENTLY,MARKETPRICEWILLBEUNAFFECTEDBYTHESHIFTTODH11032THATIS,PRICEWILLREMAINATP1OFCOURSE,ATTHISPRICE,THEPERSONDEFINITION374PARTVPERFECTCOMPETITIONFORWHOMTHEDEMANDCURVEHASSHIFTEDWILLCONSUMESLIGHTLYMOREQH33526H110321ASSHOWNINFIGURE143CBUTTHISAMOUNTISATINYPARTOFTHEMARKETIFMANYINDIVIDUALSEXPERIENCESHIFTSOUTWARDINTHEIRDEMANDCURVES,THEENTIREMARKETDEMANDCURVEMAYSHIFTFIGURE143BSHOWSTHENEWDEMANDCURVEDH11032THENEWEQUILIBRIUMPOINTWILLBEATP2,Q2ATTHISPOINT,SUPPLYDEMANDBALANCEISREESTABLISHEDPRICEHASINCREASEDFROMP1TOP2INRESPONSETOTHEDEMANDSHIFTNOTICEALSOTHATTHEQUANTITYTRADEDINTHEMARKETHASINCREASEDFROMQ1TOQ2THERISEINPRICEHASSERVEDTWOFUNCTIONSFIRST,ASINOURPREVIOUSANALYSISOFTHEVERYSHORTRUN,ITHASACTEDTORATIONDEMANDWHEREASATP1ATYPICALINDIVIDUALDEMANDEDQH33526H110321,ATP2ONLYQH335262ISDEMANDEDTHERISEINPRICEHASALSOACTEDASASIGNALTOTHETYPICALRMTOINCREASEPRODUCTIONINFIGURE143ATHERMSPROTMAXIMIZINGOUTPUTLEVELHASINCREASEDFROMQ1TOQ2INRESPONSETOTHEPRICERISETHATISWHATWEMEANBYASHORTRUNSUPPLYRESPONSEANINCREASEINMARKETPRICEACTSASANINDUCEMENTTOINCREASEPRODUCTIONFIRMSAREWILLINGTOINCREASEPRODUCTIONANDTOINCURHIGHERMARGINALCOSTSBECAUSEPRICEHASRISENIFMARKETPRICEHADNOTBEENPERMITTEDTORISESUPPOSETHATGOVERNMENTPRICECONTROLSWEREINEFFECT,RMSWOULDNOTHAVEINCREASEDTHEIROUTPUTSATP1THEREWOULDNOWBEANEXCESSUNLLEDDEMANDFORTHEGOODINQUESTIONIFMARKETPRICEISALLOWEDTORISE,ASUPPLYDEMANDEQUILIBRIUMCANBEREESTABLISHEDSOTHATWHATRMSPRODUCEISAGAINEQUALTOWHATINDIVIDUALSDEMANDATTHEPREVAILINGMARKETPRICENOTICEALSOTHATATTHENEWPRICEP2,THETYPICALRMHASINCREASEDITSPROTSTHISINCREASINGPROTABILITYINTHESHORTRUNWILLBEIMPORTANTTOOURDISCUSSIONOFLONGRUNPRICINGLATERINTHISCHAPTERSHIFTSINSUPPLYANDDEMANDCURVESAGRAPHICALANALYSISINPREVIOUSCHAPTERSWEESTABLISHEDMANYREASONSWHYEITHERADEMANDCURVEORASUPPLYCURVEMIGHTSHIFTTHESEREASONSAREBRIEYSUMMARIZEDINTABLE141ALTHOUGHMOSTOFTHESEMERITLITTLEADDITIONALEXPLANATION,ITISIMPORTANTTONOTETHATACHANGEINTHENUMBEROFRMSWILLSHIFTTHESHORTRUNMARKETSUPPLYCURVEBECAUSETHESUMINEQUATION141WILLBEOVERADIFFERENTNUMBEROFRMSTHISOBSERVATIONALLOWSUSTOTIETOGETHERSHORTRUNANDLONGRUNANALYSISITSEEMSLIKELYTHATTHETYPESOFCHANGESDESCRIBEDINTABLE141ARECONSTANTLYOCCURRINGINREALWORLDMARKETSWHENEITHERASUPPLYCURVEORADEMANDCURVEDOESSHIFT,EQUILIBRIUMPRICEANDQUANTITYWILLCHANGEINTHISSECTIONWESHALLINVESTIGATEGRAPHICALLYTHERELATIVEMAGNITUDESOFSUCHCHANGESANDSHOWTHATTHEOUTCOMEDEPENDSONTHESHAPESOFTHECURVESCHAPTER14THEPARTIALEQUILIBRIUMCOMPETITIVEMODEL375REASONSFORSHIFTSINDEMANDORSUPPLYCURVESDEMANDCURVESSHIFTBECAUSESUPPLYCURVESSHIFTBECAUSEINCOMESCHANGEINPUTPRICESCHANGEPRICESOFSUBSTITUTESORCOMPLEMENTSCHANGETECHNOLOGYCHANGESPREFERENCESCHANGENUMBEROFPRODUCERSCHANGESTABLE141SHIFTSINSUPPLYCURVESIMPORTANCEOFTHESHAPEOFTHEDEMANDCURVECONSIDERRSTASHIFTUPWARDINTHESHORTRUNSUPPLYCURVEFORAGOODSUCHASHIFT,FOREXAMPLE,MIGHTHAVERESULTEDFROMANINCREASEINTHEPRICESOFINPUTSUSEDBYRMSTOPRODUCETHEGOODWHATEVERTHECAUSEOFTHESHIFT,ITISIMPORTANTTORECOGNIZETHATTHEEFFECTOFTHESHIFTONTHEEQUILIBRIUMLEVELOFPANDQWILLDEPENDONTHESHAPEOFTHEDEMANDCURVEFORTHEPRODUCTFIGURE144ILLUSTRATESTWOPOSSIBLESITUATIONSTHEDEMANDCURVEINFIGURE144AISRELATIVELYPRICEELASTICTHATIS,ACHANGEINPRICESUBSTANTIALLYAFFECTSQUANTITYDEMANDEDFORTHISCASE,ASHIFTINTHESUPPLYCURVEFROMSTOSH11032WILLCAUSEEQUILIBRIUMPRICETORISEONLYMODERATELYFROMPTOPH11032,WHEREASQUANTITYDECLINESSHARPLYFROMQTOQH11032RATHERTHANBEING“PASSEDON”INHIGHERPRICES,THEINCREASEINTHERMSINPUTCOSTSISMETPRIMARILYBYADECREASEINQUANTITYAMOVEMENTDOWNEACHRMSMARGINALCOSTCURVEANDONLYASLIGHTINCREASEINPRICETHISSITUATIONISREVERSEDWHENTHEMARKETDEMANDCURVEISINELASTICINFIGURE144BASHIFTINTHESUPPLYCURVECAUSESEQUILIBRIUMPRICETORISESUBSTANTIALLY,WHEREASQUANTITYISLITTLECHANGEDTHEREASONFORTHISISTHATINDIVIDUALSDONOTREDUCETHEIRDEMANDSVERYMUCHIFPRICESRISECONSEQUENTLY,THESHIFTUPWARDINTHESUPPLYCURVEISALMOSTENTIRELYPASSEDONTODEMANDERSINTHEFORMOFHIGHERPRICESSHIFTSINDEMANDCURVESIMPORTANCEOFTHESHAPEOFTHESUPPLYCURVESIMILARLY,ASHIFTINAMARKETDEMANDCURVEWILLHAVEDIFFERENTIMPLICATIONSFORPANDQ,DEPENDINGONTHESHAPEOFTHESHORTRUNSUPPLYCURVETWOILLUSTRATIONSARE376PARTVPERFECTCOMPETITIONEFFECTOFASHIFTINTHESHORTRUNSUPPLYCURVEDEPENDSONTHESHAPEOFTHEDEMANDCURVEINATHESHIFTUPWARDINTHESUPPLYCURVECAUSESPRICETOINCREASEONLYSLIGHTLYWHEREASQUANTITYDECLINESSHARPLYTHISRESULTSFROMTHEELASTICSHAPEOFTHEDEMANDCURVEINBTHEDEMANDCURVEISINELASTICPRICEINCREASESSUBSTANTIALLY,WITHONLYASLIGHTDECREASEINQUANTITYPRICEPRICEAELASTICDEMANDBINELASTICDEMANDSH11032SH11032SH11032PH11032QPERPERIODQH11032QQPERPERIODQH11032QPPH11032PSSSDDFIGURE144SHOWNINFIGURE145INFIGURE145ATHESUPPLYCURVEFORTHEGOODINQUESTIONISINELASTICINTHISSITUATIONASHIFTOUTWARDINTHEMARKETD