There are N players in a perfectly competitive market each with an income of $1000. There are
Question:
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There are N players in a perfectly competitive market each with an income of $1000.
There are 5 goods with prices 5, 6, 7, 8 and 9, respectively.
The demand function of every good for each player is given by:
where E(p) is the expected price, m is the income and p is the current market price of the
good.
The pricing function which determines the new price of a good is given by:
where W(p) is the 'Willingness to Pay' defined as: W(p) is less than or equal to E(p), and q
is the Quantity Demanded by an individual.
Assume that:
1. At the very beginning, the players expect the prices to change and the market will
move slightly upwards.
2. The good will be sold to the player with the highest willingness to pay, and with
perfect competition this will put upward pressure on W(p).
3. There is perfect information and every player knows the pricing and demand
functions, thus, will change the expected price accordingly.
The total income that is left for each player will be spent on the good that sees the maximum
percentage increase after the prices have settled with the first round of buying. This purchase
will also change the price of that good.
Given all this information, evaluate the final quantity and price of each good in this market.
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