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Economics Review (Pt. 2)

Economics Review (Pt. 2). Market equilibrium and more elasticity. Market Equilibrium. Marshall was the first to clearly establish the notion of market equilibrium-like two scissor blades establishing price and quantity traded.

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Economics Review (Pt. 2)

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  1. Economics Review (Pt. 2) Market equilibrium and more elasticity

  2. Market Equilibrium • Marshall was the first to clearly establish the notion of market equilibrium-like two scissor blades establishing price and quantity traded. • Solved a problem that had vexed (previously only economists)-were diamonds high-priced because they were hard to find or because people wanted to wear them? • Integral to Marshall’s notion was time-over the short run demand asserted its upper hand, but over the long term production-supply-is stronger

  3. +200,000 +120,000 -140,000 -300,000

  4. Dn Dn S S P Slr P D S P D p* p p Q Q Q Market equilibrium after an increase in demand MC P MC P MC P ATC ATC ATC p* p Q Q Q Firm equilibrium after an increase in demand

  5. Resource Scarcity P S D3 D2 P3 D1 P2 Q

  6. Economic Issues & Forest Tenures • Method of allocation • Need to find their way to most productive use • Scope of rights • Exclude externalities and will be ignored-otherwise if included in maximizing value will internalize those • Some can’t be easily internalized (biodiversity) • Security • Duration of rights; prospects for renewal; balanced against government need for flexibility

  7. Econ. Issues & Tenure (cont.) • Scope of Intervention • Balance against rights-holders ability to pursue economic gain versus government goal of maximizing societal value • Allocation of management responsibilities • Management planning • Inventory • reforestation • Distribution of resource rent

  8. S S Inefficient Markets Use B Sa Use A Sb P pb p* Db pa Da D qa* Qa Qb qb*

  9. Elasticity and Total Revenue • Total Revenue changes with a change in price • If unit elastic (1), total revenue (price *quantity) will be the same • If value is less than one, price increase will increase revenue • If value is morethan one, price increase will lead revenue to decline Elastic Demand D s

  10. Relative Changes from changes in Supply • Elasticities can influence industry behaviour S1 D P1 S2 P2 Q2 Q1

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