This week was mostly a procedural review of the other concepts. However, one gem was introduced. A market clearing price is a price where the number of buyers = the number of sellers. That’s it. If a price is set too high, so that a person wants to sell but can’t find a buyer, or if it’s too low, so that a person wants to buy but can’t find a seller, then the price is NOT a market clearing price.
Notice that MCPs are probably the quickest and easiest way to find out which prices create competitive distributions. If a price is market-clearing, then we know the distribution will be competitive. We’ll be going over this on Saturday.
Friday, March 13, 2009
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