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Is it true that a firm with market power can sell whatever quantity it wishes at whatever prices it chooses?
No. Even a simple understanding of economics and price theory will prove this. No matter the firm's market power, price is always set by supply and demand. They can try and command a price on their own, but competitors will find a way to sell the same thing at a lower price. Supply and Demand always dictate price...even in gas prices contrary to what the media would have you believe. If Americans quit using so mus gas, the price would drop. But we keep buying it up and the demand rises during the summer. Since there is only a fixed amount of the product available for the world, this increased demand forces the price up ...because somewhere, somebody is willing to pay it. And if nobody is willing to pay it, they will lower the price to encourage it.
Now, what if the government forced them to lower the price. Suppose they set a limit at 2.00 cents a gallon. The result? There would never be enough gas to last. People would take the opportunity to fill up all their cars, their mowers, their gas cans, their boat...and then the guy who just needs a few gallons can't get any because everyone else bought it up due to an artificial price fix.
Supply and demand are the factors that affect price. Not anything else. It's NOT a company's "greedy" desire for profit. In fact, big oil companies make only about 12 cents on each gallon of gas...the government taxes each gallon nearly 20 cents...so do the math. If X oil company posts a profit of 12 billion dollars, the media goes nuts and everybody calls them greedy...but that means the government just got 20 billion in taxes off the same gas.
Instead of phony "price ceilings" let supply and demand have their way in the market.
What else can I help you with?
What is the difference between a market maker and a market taker in the financial markets?
A market maker is a trader who provides liquidity by offering to buy or sell securities at publicly quoted prices. A market taker, on the other hand, is a trader who accepts the prices offered by market makers and executes trades at those prices.
What can a firm with market power do?
A firm with market power has the ability to control prices and total market output .
Can you explain the difference between a bull and bear market?
A bull market is when stock prices are rising, and investors are optimistic about the economy. A bear market is when stock prices are falling, and investors are pessimistic about the economy.
What is the difference between a market maker and a market taker in the financial industry?
A market maker is a trader who provides liquidity by buying and selling securities, while a market taker is a trader who accepts the prices offered by market makers and executes trades based on those prices.
How market structures determine the pricing and output decisions of businesses?
There are different kinds of markets in different economies/sectors/goods. Accordingly, there are different kinds of output and pricing decisions which take place. Usually, output and pricing decisions are interdependent except for the case of perfectly competitive markets. In perfectly competitive markets, a single firm is so small compared to the market that it cannot affect the prices. In that case, it must take the price as given, and then decide the quantity to be supplied. Price in this market is equal to the marginal cost of production. In monopoly, however, things are different. The monopolist can change the prices, as it is the sole provider of the good and thus has the market power. But here also, if the price increases quantity demanded decreases. Therefore, the monopolist must take under consideration both the positive and negative effects of increase in prices. In another market oligopoly, pricing is a bit more complicated and it depends upon the strategic interaction among the firms.
Is it true that a firm with a market power can sell whatever quantity it wishes at whatever price it chooses?
Not necessarily. If a company has "market power", this would mean that they have more market share than other companies in the industry. If this company tried to significantly increase prices, they can very quickly lose their market power to competitors (assuming that the competitors leave their prices relatively the same) coming in and taking away customers with lower prices. Another rule of thumb is that the more profitable your business is, the more competitive it will become. Others will see that there is money to be made and will join in the market to steal customers away from you. Just because you are a market leader doesn't mean you can jack up your prices and still continue to be a market leader.
When equilibrium demanded is greater than quantity the market prices will what?
rise
What is a market-clearing model?
The market clearing model is a model where prices adjust to equilibrating demand and supply meaning the quantity supply equals the quantity demanded. These models are useful for studying situations where prices are flexible.
How does the relationship between quantity supplied and price impact market equilibrium?
The relationship between quantity supplied and price impacts market equilibrium by influencing the point where supply and demand intersect. When the quantity supplied is higher than the quantity demanded, prices tend to decrease to reach equilibrium. Conversely, when the quantity supplied is lower than the quantity demanded, prices tend to increase to reach equilibrium. This dynamic process helps ensure that supply and demand are balanced in the market.
What is a market clearing model?
The market clearing model is a model where prices adjust to equilibrating demand and supply meaning the quantity supply equals the quantity demanded. These models are useful for studying situations where prices are flexible.
What is a marketing model?
The market clearing model is a model where prices adjust to equilibrating demand and supply meaning the quantity supply equals the quantity demanded. These models are useful for studying situations where prices are flexible.
Definition of producer surplus?
the utility to a producer from living in a market where a greater quantity will be supplied when prices increase
Is changing movie ticket prices illegal?
Theaters can charge whatever the market will bear.
How does the concept of supply and demand influence pricing in the market?
The concept of supply and demand influences pricing in the market by determining the equilibrium price at which the quantity of goods or services supplied equals the quantity demanded. When demand exceeds supply, prices tend to rise, and when supply exceeds demand, prices tend to fall. This dynamic interaction between supply and demand helps establish market prices.
How are prices determined in a competitive market?
Prices in a competitive market are determined by the interaction of supply and demand. When there is high demand for a product or service but limited supply, prices tend to rise. Conversely, when supply exceeds demand, prices typically fall. This constant balancing act between buyers and sellers helps establish the equilibrium price, where the quantity demanded equals the quantity supplied.
How does the relationship between demand and supply impact market equilibrium?
The relationship between demand and supply impacts market equilibrium by determining the price and quantity at which they are in balance. When demand exceeds supply, prices tend to rise, leading to a surplus. Conversely, when supply exceeds demand, prices tend to fall, leading to a shortage. Market equilibrium occurs when the quantity demanded equals the quantity supplied, resulting in a stable price.
How can one calculate excess demand in a market?
Excess demand in a market can be calculated by subtracting the quantity supplied from the quantity demanded at a given price level. If the quantity demanded is greater than the quantity supplied, there is excess demand in the market.
