tailieunhanh - Ebook Microeconomic theory - Basic principles and extensions (11th edition): Part 2

(BQ) Part 2 book "Microeconomic theory - Basic principles and extensions" has contents: The partial equilibrium competitive model, general equilibrium and welfare, monopoly, imperfect competition, labor markets, capital and time, asymmetric information, externalities and public goods. | Competitive Markets PART FIVE Chapter 12 The Partial Equilibrium Competitive Model Chapter 13 General Equilibrium and Welfare In Parts 2 and 4 we developed models to explain the demand for goods by utility-maximizing individuals and the supply of goods by profit-maximizing firms. In the next two parts we will bring together these strands of analysis to discuss how prices are determined in the marketplace. The discussion in this part concerns competitive markets. The principal characteristic of such markets is that firms behave as price-takers. That is, firms are assumed to respond to market prices, but they believe they have no control over these prices. The primary reason for such a belief is that competitive markets are characterized by many suppliers; therefore, the decisions of any one of them indeed has little effect on prices. In Part 6 we will relax this assumption by looking at markets with only a few suppliers (perhaps only one). For these cases, the assumption of pricetaking behavior is untenable; thus, the likelihood that firms’ actions can affect prices must be taken into account. Chapter 12 develops the familiar partial equilibrium model of price determination in competitive markets. The principal result is the Marshallian ‘‘cross’’ diagram of supply and demand that we first discussed in Chapter 1. This model illustrates a ‘‘partial’’ equilibrium view of price determination because it focuses on only a single market. In the concluding sections of the chapter we show some of the ways in which such models are applied. A specific focus is on illustrating how the competitive model can be used to judge the welfare consequences for market participants of changes in market equilibria. Although the partial equilibrium competitive model is useful for studying a single market in detail, it is inappropriate for examining relationships among markets. To capture such cross-market effects requires the development of ‘‘general’’ equilibrium models—a topic we take up in