The Economy 2.0 - Microeconomics

Take a closer look at the units of the microeconomics volume of The Economy 2.0: what they’re about, what models they present, how they’re changing compared with The Economy 1.0.


Unit 8 — Supply and demand: Markets with many buyers and sellers


Unit 8 discusses markets with many buyers and sellers and introduces the model of supply and demand. It includes an explanation of the intuition behind each curve, shifts in the curves, short-and long-run equilibria, and a discussion of competitive equilibria.



This unit’s main model is the supply and demand model. It also includes a model of how a firm operating in a perfectly competitive market determines its profit-maximizing quantity. The unit also includes a game-theory model which demonstrates how increasing the degree of competition can break a cartel by turning it into a Prisoner’s Dilemma.


Major changes

The firm operating in a perfectly competitive market is assumed to have a horizontal marginal cost curve with a step function, in contrast to The Economy 1.0 where the firm had an upward sloping marginal cost curve. The market supply curve is derived from these individual supply curves, assuming heterogeneity between firms.

The existing material has been streamlined and the unit now includes some topics which were previously in Unit 11, including the role of prices as conveyors of information, short- and long-run equilibrium with entry of new firms, price controls, and a case study on oil prices.


The header

This is the header we’ve chosen for Unit 8.

In markets with many sellers of the same product, competition is more intense. Unit 8 discusses this.

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