Can you please either solve the question or explain what his diagram means.

Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter3: Demand And Supply
Section: Chapter Questions
Problem 53P: Table 3.8 shows information on the demand and supply for bicycles, where the quantities of bicycles...
icon
Related questions
Question

Good Afternoon 

 

I asked this question to your colleague but he didn't explain what his diagram means like what is E what is SS what is D and DD'.

 

Can you please either solve the question or explain what his diagram means.

 

Tell me what all the terms of the diagram mean.

 

Thank you

Question
Question : Plesse hellp awnsering the following question Thank you
1. Show on a single diagram, given a competitive market, an
increase in demand will provide the opportunity for rent
seeking activity
Expert Answer
Step 1
Competitive meriket ia the merket with large number of buyers and sellera, selling
homogeneous gooda and services.
Step 2
When the demand increases in competitive market, the equilibrium price and quantity
incresse
The shifting of equilibrium from E to E' ia due to rent-seeking behevior by the producers in the
market.
Rent-seeking behevior meana geining weelth/money without creating it. Economic egent can
take adventege of rent-seeking behevior when the market is not in equilibrium, by charginge
different price than the competitive price.
When the demand rises, there would be excess demend, ie the quentity demended exceed
quantity supplied. This gives the producer short-term mariket power to charge price greater
than the equilibrium price as the consumers are not getting the good easily in the market due
to shortage.
Overtime, all the producer cherge the higher price then the equilibrium price due to shortage
and earn economic rent or profita. This rent-seeking behaviorby the sellers will eventually
equete the new demand to supply. Thus, the economy will be again in equilibrium at which
the equilibrium price and quentity ia higher than initial equilibrium.
Price
DD'
Q'
Quantity
Transcribed Image Text:Question Question : Plesse hellp awnsering the following question Thank you 1. Show on a single diagram, given a competitive market, an increase in demand will provide the opportunity for rent seeking activity Expert Answer Step 1 Competitive meriket ia the merket with large number of buyers and sellera, selling homogeneous gooda and services. Step 2 When the demand increases in competitive market, the equilibrium price and quantity incresse The shifting of equilibrium from E to E' ia due to rent-seeking behevior by the producers in the market. Rent-seeking behevior meana geining weelth/money without creating it. Economic egent can take adventege of rent-seeking behevior when the market is not in equilibrium, by charginge different price than the competitive price. When the demand rises, there would be excess demend, ie the quentity demended exceed quantity supplied. This gives the producer short-term mariket power to charge price greater than the equilibrium price as the consumers are not getting the good easily in the market due to shortage. Overtime, all the producer cherge the higher price then the equilibrium price due to shortage and earn economic rent or profita. This rent-seeking behaviorby the sellers will eventually equete the new demand to supply. Thus, the economy will be again in equilibrium at which the equilibrium price and quentity ia higher than initial equilibrium. Price DD' Q' Quantity
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Competitive Markets
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Principles of Economics 2e
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
Economics
ISBN:
9781305971493
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:
9781285165912
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics, 7th Edition (MindTap Cou…
Principles of Economics, 7th Edition (MindTap Cou…
Economics
ISBN:
9781285165875
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning