In a standard competitive market model, a positive shock to demand causes the equilibrium price to increase. The magnitude of this price increase is determined by the expression ∂P*/∂a = (∂D/∂a) / [(∂S/∂P) - (∂D/∂P)], where 'a' is the demand shock parameter, P is price, D is quantity demanded, and S is quantity supplied. Holding the size of the initial demand shock (the numerator) constant, the resulting price increase will be largest under which of the following conditions?
0
1
Tags
Sociology
Social Science
Empirical Science
Science
Economics
Economy
CORE Econ
Introduction to Microeconomics Course
Ch.8 Supply and demand: Markets with many buyers and sellers - The Economy 2.0 Microeconomics @ CORE Econ
Analysis in Bloom's Taxonomy
The Economy 2.0 Microeconomics @ CORE Econ
Cognitive Psychology
Psychology
Related
Sign Analysis of the Equilibrium Quantity Change from a Demand Shock (∂Q*/∂a)
In a competitive market model, the effect of a positive demand shock (represented by an increase in a parameter 'a') on the equilibrium price (P*) is given by the expression:
∂P*/∂a = (∂D/∂a) / [(∂S/∂P) - (∂D/∂P)]
where D is quantity demanded and S is quantity supplied. Analyze this expression under the following unusual market conditions:
- The demand curve is downward-sloping (∂D/∂P < 0).
- The supply curve is also downward-sloping (∂S/∂P < 0).
- The demand shock parameter 'a' has a pos
Price Effect of a Demand Shock
Evaluating an Analyst's Claim on Price Effects
Consider the following statement about a competitive market model where P* is the equilibrium price and 'a' is a parameter that positively shifts the demand curve: 'A positive shock to demand (an increase in 'a') causes the equilibrium price to rise. This occurs because the expression for the price change, ∂P*/∂a, has a positive numerator, and its denominator, (∂S/∂P) - (∂D/∂P), is also positive since both the slope of the supply curve (∂S/∂P) and the slope of the demand curve (∂D/∂P) are positi
In a standard competitive market model, the change in equilibrium price (P*) resulting from a shift in the demand curve (due to a parameter 'a') is given by the expression:
∂P*/∂a = (∂D/∂a) / [(∂S/∂P) - (∂D/∂P)]
Match each mathematical component from the expression with its correct economic interpretation and sign.
Deriving the Price Impact of a Demand Shock
In the standard analysis of how a demand shock (represented by a parameter 'a') affects equilibrium price (P*), the denominator of the expression for ∂P*/∂a is (∂S/∂P) - (∂D/∂P). Given that the supply curve is upward-sloping and the demand curve is downward-sloping, the sign of this denominator is definitively ______.
To mathematically determine the direction of the change in equilibrium price (P*) following a positive shock to demand (represented by a parameter 'a'), one must analyze the sign of the expression for ∂P*/∂a. Arrange the following logical steps into the correct sequence used to prove that the equilibrium price increases in a standard competitive market.
Analyzing Price Changes in the Market for Electric Scooters