Microeconomics: Equilibrium Price, Cost and Revenue, Perfectly Competitive Market

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ECONOMICS ASSIGNMENT

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Table of contents
Q 1..............................................................................................................................................3
Q 2..............................................................................................................................................4
Q 3..............................................................................................................................................5
Reference....................................................................................................................................7

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Q 1
The equilibrium price in a market is set by the interaction between the supply and the demand
of the market1. The equilibrium price is a price level where the market gets cleared. The
introduction of minimum price above the equilibrium price would create an excess surplus in
the market. At that higher price fewer customers in the market would be interested in buying
the product. On the other hand, according to the principle of supply and demand, suppliers
would like to supply more quantity of goods at that increased price. This difference between
the high supply and low demand would create an excess surplus in the market.
Figure 1: The price floor in the market
(Source: Developed by the learner)
This introduction of minimum price above the equilibrium is done to help the producers.
However, from the perspective of the society as a whole, this can reduce the welfare2. While,
1 Iossa, Elisabetta, and David Martimort. "The simple microeconomics of public‐private
partnerships." Journal of Public Economic Theory 17, no. 1 (2015): 4-48.
2 Friedman, Lee S. The microeconomics of public policy analysis. Princeton University Press,
2017.