I’m working on a Economics question and need guidance to help me study.
Perfect competition is the ‘supply and demand’ model that is often used to (inaccurately) represent all of economics. Supply is simply the aggregation of individual firms’ supply curves, which, in turn, are nothing more than their marginal cost curves. Demand tells us how much consumers will purchase at different prices. Note: supply curves assume that producers have no control over prices and demand curves assume the same for consumers. That is what economists mean when they say ‘the price is set in the market.’ For other market structures, the price is often set in someone’s office. Labor markets are often good examples of perfect competition. There are many suppliers (the potential workers) and, usually, many buyers (the firms). While labor is not homogeneous across all labor markets, it can be homogeneous if the work is defined narrowly enough. Suppose the market for nurses can be modeled using supply and demand (the market is perfectly competitive). There are a large number of hospitals, doctors’ offices, clinics, etc., so that no individual employer has an impact on the market wage. The nurses are not unionized so they individually have no impact on the wage. Demand is given as Qd = 24,000 – 320W, where Qd is the quantity demanded (in full-time equivalents) and W is the hourly wage rate. Supply is given as Qs = -18,000 + 1250W, where Qs is the quantity supplied. 1. Find the equilibrium wage rate. This is done by setting the quantity demanded equal to the quantity supplied and algebraically solving for W. That is, solve the following equation for W:
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