Question

Prove that the factor demand function and the supply function are hg0

Answer 1

ordinary demand function -

Nonconvex Z may yield a discontinuous D

Cross-price effects are symmetric

Own-price demand slopes downward

Same basic properties as for H function

  for Conditional demand function:-

Nonconvex Z yields discontinuous H

Cross-price effects are symmetric

Own-price demand slopes downward

(exceptional case: own-price demand could be constant)

supply function -

Supply curve slopes upward

Supply decreases with the price of input if MC increases with the price of that input

Nonconcave f yields discontinuous S

IRTS means f is nonconcave and so S is discontinuous

The short run: concept

This is not a moment in time

It is defined by additional constraints within the model

Counterparts in other economic applications where one may need to introduce side constraints

Demand and Supply as a Social Adjustment Mechanism |:-

The demand and supply model emphasizes that prices are not set only by demand or only by supply, but by the interaction between the two. In 1890, the famous economist Alfred Marshall wrote that asking whether supply or demand determined a price was like arguing “whether it is the upper or the under the blade of a pair of scissors that cuts a piece of paper.” The answer is that both blades of the demand and supply scissors are always involved.

The adjustments of equilibrium price and quantity in a market-oriented economy often occur without much government direction or oversight. If the coffee crop in Brazil suffers a terrible frost, then the supply curve of coffee shifts to the left and the price of coffee rises. Some people—call them the coffee addicts—continue to drink coffee and pay the higher price. Others switch to tea or soft drinks. No government commission is needed to figure out how to adjust coffee prices, which companies will be allowed to process the remaining supply, which supermarkets in which cities will get how much coffee to sell, or which consumers will ultimately be allowed to drink the brew. Such adjustments in response to price changes happen all the time in a market economy, often so smoothly and rapidly that we barely notice them.

hence we can say that demand function and the supply function are high because Consumer surplus is the gap between the price that consumers are willing to pay, based on their preferences and the market equilibrium price. Producer surplus is the gap between the price for which producers are willing to sell a product, based on their costs, and the market equilibrium price. Social surplus is the sum of consumer surplus and producer surplus. Total surplus is larger at the equilibrium quantity and price than it will be at any other quantity and price. Deadweight loss is a loss in total surplus that occurs when the economy produces at an inefficient quantity.