Explain how equilibrium is established in different types of markets

The term economic equilibrium can also be applied to any number of variables such as the interest rate that allow the greatest growth of the banking and non-financial sector, or that create the ideal number of employment opportunities within a particular sector. States of Economic Equilibrium A state of economic equilibrium can be static or dynamic.

Explain how equilibrium is established in different types of markets

Works Project Administration poster Disciplines such as sociologyeconomic historyeconomic geography and marketing developed novel understandings of markets [5] studying actual existing markets made up of persons interacting in diverse ways in contrast to an abstract and all-encompassing concepts of "the market".

The term "the market" is generally used in two ways: Microeconomics Microeconomics from Greek prefix mikro- meaning "small" and economics is a branch of economics that studies the behavior of individuals and small impacting organizations in making decisions on the allocation of limited resources see scarcity.

On the other hand, macroeconomics from the Greek prefix makro- meaning "large" and economics is a branch of economics dealing with the performance, structure, behavior and decision-making of an economy as a whole, rather than individual markets.

The modern field of microeconomics arose as an effort of neoclassical economics school of thought to put economic ideas into mathematical mode. A recurring theme of these debates was the contrast between the labor theory of value and the subjective theory of valuethe former being associated with classical economists such as Adam SmithDavid Ricardo and Karl Marx Marx was a contemporary of the marginalists.

In his Principles of Economics[7] Alfred Marshall presented a possible solution to this problem, using the supply and demand model. The supply curve could be derived by superimposing a representative firm supply curves for the factors of production and then market equilibrium would be given by the intersection of demand and supply curves.

He also introduced the notion of different market periods: This set of ideas gave way to what economists call perfect competition —now found in the standard microeconomics texts—even though Marshall himself was highly skeptical, it could be used as general model of all markets.

Opposed to the model of perfect competition, some models of imperfect competition were proposed: The monopoly model, already considered by marginalist economists, describes a profit maximizing capitalist facing a market demand curve with no competitors, who may practice price discrimination.

Oligopoly is a market form in which a market or industry is dominated by a small number of sellers. The oldest model was the duopoly of Cournot Hotelling built a model of market located over a line with two sellers in each extreme of the line, in this case maximizing profit for both sellers leads to a stable equilibrium.

From this model also follows that if a seller is to choose the location of his store so as to maximize his profit, he will place his store the closest to his competitor as "the sharper competition with his rival is offset by the greater number of buyers he has an advantage".

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another e. In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.

The "founding father" of the theory of monopolistic competition is Edward Hastings Chamberlinwho wrote a pioneering book on the subject, Theory of Monopolistic Competition Joan Robinson published a book called The Economics of Imperfect Competition with a comparable theme of distinguishing perfect from imperfect competition.

Chamberlin defined monopolistic competition as "challenge to traditional viewpoint of economics that competition and monopoly are alternatives and that individual prices are to be explained in terms of one or the other". Baumol defined a contestable market in his paper as a market where "entry is absolutely free and exit absolutely costless", freedom of entry in Stigler sense: He states that a contestable market will never have an economic profit greater than zero when in equilibrium and the equilibrium will also be efficient.

According to Baumol, this equilibrium emerges endogenously due to the nature of contestable markets, that is the only industry structure that survives in the long run is the one which minimizes total costs.


This is in contrast to the older theory of industry structure since not only industry structure is not exogenously given, but equilibrium is reached without add hoc hypothesis on the behavior of firms, say using reaction functions in a duopoly. In particular, three authors emerged from this period: Akerlof, Spence and Stiglitz.

Akerlof considered the problem of bad quality cars driving good quality cars out of the market in his classic " The Market for Lemons " because of the presence of asymmetrical information between buyers and sellers. Macpherson identifies an underlying model of the market underlying Anglo-American liberal democratic political economy and philosophy in the seventeenth and eighteenth centuries: The state and its governance systems are cast as outside of this framework.

Market clearing

According to David Harveythis allowed for boilerplate economic and institutional restructuring under structural adjustment and post-Communist reconstruction.

The Regulation school stresses the ways in which developed capitalist countries have implemented varying degrees and types of environmental, economic and social regulation, taxation and public spending, fiscal policy and government provisioning of goods, all of which have transformed markets in uneven and geographical varied ways and created a variety of mixed economies.

Drawing on concepts of institutional variance and path dependencevarieties of capitalism theorists such as Peter Hall and David Soskice identify two dominant modes of economic ordering in the developed capitalist countries, "coordinated market economies" such as Germany and Japan and an Anglo-American "liberal market economies".

However, such approaches imply that the Anglo-American liberal market economies in fact operate in a matter close to the abstract notion of "the market". While Anglo-American countries have seen increasing introduction of neo-liberal forms of economic ordering, this has not led to simple convergence, but rather a variety of hybrid institutional orderings.Explain How Equilibrium Is Established In Different Types Of Markets.

Market Equilibrium- Asifa Kwong Examine how market equilibrium is determined and explain why governments intervene in markets. Use diagrams to illustrate your answer. Market equilibrium is a market state where the supply in the market is equal to the demand in the market.

The equilibrium price is the price of a good or service when the supply of it is equal to.

Explain how equilibrium is established in different types of markets

Explain how equilibrium is established in at least two different types of market structure WITH MY APOLOGIES TO RYANAIR WHO HAVE . Economic equilibrium; A solution concept in Market equilibrium in this case refers to a condition where a market price is established through competition such that the amount of For example, an increase in supply will disrupt the equilibrium, leading to lower prices.

Eventually, a new equilibrium will be attained in most markets. Economic equilibrium is a condition or state in which economic forces are balanced. In effect, economic variables remain unchanged from . How is equilibrium established? At a price higher than equilibrium, demand will be less than , but supply will be more than and there will be an excess of supply in the short run.

Graphically, we say that demand contracts inwards along the curve and supply extends outwards along the curve.

Economic Equilibrium