Economics review pt 2
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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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Economics review pt 2

Economics Review (Pt. 2)

Market equilibrium and more elasticity


Market equilibrium

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


Economics review pt 2

+200,000

+120,000

-140,000

-300,000


Economics review pt 2

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


Resource scarcity

Resource Scarcity

P

S

D3

D2

P3

D1

P2

Q


Economic issues forest tenures

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


Econ issues tenure cont

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


Inefficient markets

S

S

Inefficient Markets

Use B

Sa

Use A

Sb

P

pb

p*

Db

pa

Da

D

qa*

Qa

Qb

qb*


Elasticity and total revenue

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


Relative changes from changes in supply

Relative Changes from changes in Supply

  • Elasticities can influence industry behaviour

S1

D

P1

S2

P2

Q2

Q1


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