Micro economics (Term Paper Sample)

Micro economics Name Course Professor Institution City Date Micro economics Question 1 a). The Pareto Efficiency concept, also referred to as "Pareto optimality", is defined as the state economically whereby resources allocated cannot be given to one individual so that they become better off instead of making another worse off. Moreover, the concept implies that resources are continually allocated efficiently. However, equality and fairness are not involved. A fundamental tenet of welfare finances is “Pareto efficiency”, designated after a political scientist and economist Vilfredo Pareto from Italy, born in 1848 and died in 1923. Although neither great initiative nor perfectly competing markets exist beyond economics, Keynesian economics and the hypothetical concept of perfect rivalry are employed as an average to assess the effectiveness of the real budget (Carvajal & Jong, 2018). The production potential frontier gets more easily illustrated with a graphic representation of Pareto efficiency. The commodity arrangement possibilities that result in efficient markets make the production possibility frontier. Because more costs are allocated, groupings that do not lie on the production potential frontier are economical. On the other hand, the conventional view is that of competitive equilibrium, wherein the involvement of market forces, such as supply and demand, reacts to prices. In contrast, prices respond to supply and demand. This stability is supported by the theory of a "competitive marketplace". Every seller chooses a small amount compared to the total volume transacted in the market during this time. Most of the time, the dealers' business can generate no impact whatsoever on the pricing (Carvajal & Jong, 2018). b). Any perfect competition in a market has to be Pareto optimal, according to the first fundamental theorem of utility economics. It does not, however, have confidence that all needs will experience such an optimum. However, with certain extra constraints, it is possible to demonstrate that perfect competition exists. For instance, in a pure market system with only customers and no companies, a competitive equilibrium is assured of living provided the following requirements are satisfied: first, when every equation is uninterrupted. Secondly, when each is curved, and finally, when every customer has a wholly positive gift of every good. The second, third, and final conditions are when each is rising. However, it is no longer expected that there will be a balance if any of these requirements are not met (Sicong, 2018). The first welfare theorem, therefore, suggests that the relationship between equity, generic competition and Pareto efficiency is evident in the following ways; firstly, representatives do not get concerned about what other representatives spend; they only worry about their product consumption. In this state, it is referred to as a consumption externality if one agent cares about the spending of another agent. Secondly, when agents engage in rivalry. It is improbable that both brokers would accept the price as supplied if there were only two, as in the "Edge worth box" case. Instead, it's more likely that the agents would be aware of their market dominance and make an effort to use it to strengthen their advantages when there are sufficient agents to ensure that each conducts aggressively. Thirdly, According to some analysts, Adam Smith's "invisible hand" is theoretically justified by the first fundamental theorem, which states that market participants' ego behaviors result in unforeseen welfare programs and ultimately beneficial economic success. The validity of other assertions that underlie the fundamental theorems has been questioned. For instance, consumers and corporations are only loosely utility- and earnings, respectively, and humans are not entirely rational agents (Sicong, 2018). c). In a real-world circumstance, the 1st welfare theorem is likely to hold when there is an absence of technological advances. It is because, in the discipline of finances, commonly it is acknowledged that innovation is the key force behind the economic growth of states, regions, and towns. Many important things depend on increased production efficiency and superior products and services made possible due to industrial development. Nevertheless, the procedures through which innovation is adapted, applied in manufacturing and created are intricate. Their more in-depth scrutiny may lead to fresh understandings with substantial implications for many strategy domains, R&D policy, trade policy, including scientific plan and regional and national growth policies. Furthermore, advanced technologies can help businesses produce items more effectively, making it simpler to deliver commodities. Firms usually expand their product offerings due to scientific changes that improves production since goods are created at a comparatively lower cost. As the quantity of commodities increases, the amount supplied rises. Question 2 a). In the Cournot model of oligopoly, firms compete based on quantity rather than price. Each firm chooses how much to produce, considering the production decisions of the other firms in the market. The market price is then determined by the level of production of all the firms in the market. The Bertrand model of oligopoly is a competition model in which firms compete on price and nothing else. In the model, firms are assumed to have identical products, and each firm chooses its price independently of the others. The difference between the Cournot and Bertrand oligopoly models arises from the different assumptions about how firms decide on their output levels. In the Cournot model, firms are assumed to take their competitors' output as fixed and decide on their output level independently. In the Bertrand model, firms are assumed to compete directly with each other in prices, so each firm's output level depends on the price set by its competitors. This difference in assumptions leads to different results in the two models. Bertrand's model is more appropriate in some circumstances: 1.It is more realistic in that firms compete on price rather than quantity. 2.It allows for different levels of market concentration, which can be more practical in some oligopolistic markets. 3.It is easier to analyze and predict the behavior of firms in the Bertrand model than in the Cournot model. It is more appropriate for markets with many firms and slight product differentiation (Tremblay, C.H. and Tremblay, V.J., 2019). b). In the Stackelberg oligopoly model, a leading firm takes the first action, and the other firms in the market follow suit. The leader firm knows what the other firms will do to make decisions accordingly. The leader firm also has an advantage because it can choose to be either a price-taker or a price-maker. The difference between Cournot and Stackelberg's oligopoly models is that in Cournot's model, firms choose their production levels simultaneously in consideration of the production decisions of other firms in the market. While in the Stackelberg model, the leader firm chooses its production level first, and then the follower firm chooses its production level....