Elastic Demand Curve Research Articles

Asteroid Mining in a Global Equitable Environmente

With the advancement of human technology and the continuous development of society, asteroid mining has entered people’s field of vision. In order to better solve a series of problems caused by asteroid mining, firstly, we use the equitable distribution of resources and opportunities to explain what global equity is, and create a global equity model using Analytic Hierarchy Process (AHP). Secondly, we establish a linear model and demonstrate the economic feasibility of this model by introducing data. Finally, we build an elastic demand curve model and a Quantitative model of financial investment papers to vary the amount of mined and the allocation rate of mined ore in the asteroid mining sector, respectively, to analyze their impact on global equity.

Efficient performance by companies with mixed ownership: Privatization and divestiture of a vertically integrated public monopoly

AbstractThis paper examines a model of privatization and divestiture of a vertically integrated public monopoly. The framework is used to derive general conditions of how mixed companies might be used to promote efficient outcomes without assuming either an ideal social planner or superior cost performance of private enterprise. The conditions suggest that efficient public policy towards mixed (public‐private partnership) companies depends on basic cost and demand conditions. The results indicate that: (1) a vertically integrated private monopoly can be more efficient than any combination of mixed companies when there is a sufficiently flat linear (elastic) demand curve and relatively greater (upward sloping) marginal cost for the downstream sector; (2) an upstream public and downstream public firm can achieve the first best outcome when the downstream firm has constant marginal costs; and (3) a partial privatization of the upstream firm achieves higher welfare than taking that action for the downstream firm. The intuition behind the propositions is provided using standard features of cost and demand. While the implications for public policy regarding privatization and divestiture in infrastructure sectors are not definitive, the results underscore the importance of understanding cost and demand conditions when developing and implementing public policies.

Multi-Objective Market Clearing Model with an Autonomous Demand Response Scheme

Demand response (DR) is known as a key solution in modern power systems and electricity markets for mitigating wind power uncertainties. However, effective incorporation of DR into power system operation scheduling needs knowledge of the price–elastic demand curve that relies on several factors such as estimation of a customer’s elasticity as well as their participation level in DR programs. To overcome this challenge, this paper proposes a novel autonomous DR scheme without prediction of the price–elastic demand curve so that the DR providers apply their selected load profiles ranked in the high priority to the independent system operator (ISO). The energy and reserve markets clearing procedures have been run by using a multi-objective decision-making framework. In fact, its objective function includes the operation cost and the customer’s disutility based on the final individual load profile for each DR provider. A two-stage stochastic model is implemented to solve this scheduling problem, which is a mixed-integer linear programming approach. The presented approach is tested on a modified IEEE 24-bus system. The performance of the proposed model is successfully evaluated from economic, technical and wind power integration aspects from the ISO viewpoint.

Improving Allocative Efficiency of Scarce Water in Southern Alberta

Using a positive mathematical programming (PMP) model with improved ‘wide-scope’ calibration, this study demonstrates how allocative efficiency of scarce water could be improved in the Bow- and Oldman River Sub Basins (BRSB and ORSB) of Southern Alberta, where 12 irrigation districts, two cities and three major industrial/commercial users withdraw bulk of the surface water for irrigation, municipal, industrial and commercial needs. Earlier studies ironically neglected the larger ORSB even though it is subject to the same water licensing and regulation policies as the BRSB. The inclusion of nine irrigation districts and non-irrigation users of ORSB enables this model to estimate allocative efficiency gains in a more comprehensive manner than before. Results indicate that ORSB has a relatively less elastic water demand curve primarily due to its more reliance on irrigation and less water saving/supply options. It is also less responsive to allocations with alternative policies as reflected in net returns, land use and cropping pattern changes due to its less elastic water demand.

The Fallacy of the Perfect Competition Theory

My previous paper A Reconsideration of the Theory of Perfect dealt with the fallacy of the Economic Theory regarding the perfectly elastic (horizontal) individual demand curve for the product of a firm; the correction of this fallacy involved a total and dramatic revision of the classic theory of Value, Perfect Competition and the associated theory of Social Welfare. The paper also included a mathematical proof for this fallacy, besides the conceptual validation, as well as the fundamental implications of it on Economics.The present paper aims to provide further support for the previous one with new arguments and findings and attempts to historically trace the fallacy and detect the reasons and root causes that presumably led to it. Specifically, this fallacy is attributed to a misinterpretation of a related Cournot's phrase regarding the perfect competition, while it is now in this paper completely reasoned that the real individual demand curves for the firms are sloped and distribute evenly the total demand among the (similar) firms for any price and thus they sum up to the total demand curve, in contrast to what the classic theory states. This unavoidably results in the monopolistic character of the market, even under perfect competition. The total profit of the industry is equally distributed among the similar firms, until the share marginally covers the fixed cost of the firm, due to the entry of new firms which are attracted by profit. This is the real reason for the stability of price in perfect competition and not the horizontal individual demand curve for the firms nor the large number of firms and the subsequent small individual production of each; those prerequisites are not valid and have to be retired and the emphasis in perfect competition must be placed on the zero profit and the entry-exit of firms.This revision of market equilibrium covers all types of market from monopoly to perfect competition and totally negates the classic theory of value and of perfect competition, as well as other fundamental outcomes of Economics, since: it invalidates the infamous principle of price determination by the intersection of total demand and total supply, as well as that of the equality of price to the minimum average cost in the long term, facts that move social welfare away from its optimum, as it is claimed by the classic economic theory; in addition, in the labor market labor is not paid according to the value of its marginal product but according to the marginal product revenue, which implies the monopolistic exploitation of labor and lower wage and employment levels and in fact worsens the previous social welfare's declination.

An empirical study on index changes on the Indonesia Stock Exchange

The presence of a positive (negative) price response to stock additions (deletions) to (from) an index has been getting attention owing to its deviation from the perfectly elastic demand curve of stocks. This study sheds light on this issue in the Indonesian context using various index categories. The results intriguingly differ from prior research in most developed countries that have confirmed a positive (negative) price response to stocks added (removed) to (from) an index. Price response patterns are even opposite, which are negative (positive) for some additions (deletions), and they seem to reject the prediction of information-based hypotheses. The positive (negative) price response to (added) deleted stocks is associated with (low) high liquidity, (low) high leverage, and (high) low growth opportunity. These results seem to confirm the advantage of value premium strategy in the Indonesian capital market.

Labor Market: Monopolistic Exploitation by Firms and Employees

Based on the author's previous paper entitled “A Reconsideration of the Theory of Perfect Competition”, which demonstrates the monopolistic nature that even purely theoretically perfect competition has, this paper identifies the factors that determine the equilibrium in the labor market as well as their impact.The non-perfectly elastic demand curve for the product of the firm results in a labor demand curve that does not reflect the Value of Marginal Product (VMP) of the labor, but the Marginal Revenue Product (MRP). This implies an exploitation of monopolistic form of the labor and lower levels of wage and employment even in perfectly competitive markets. On the other side, the employees exploitation of their monopolistic power on labor through labor unions, for the maximization of the collective benefit they can get from the demand of their labor, leads to even lower employment levels and to aggravation of the unemployment.In conclusion, there is an inevitable deviation of the social welfare from its optimal state, due to the labor market, which is an unavoidable consequence of the monopolistic-form exploitation that both, firms and employees, exert on the good they provide in the market - namely the product for the firms and the labor for the employees - in order to maximize their benefit.

The EU Market for apparel exports, China's cotton imports, and the end of the ATC

Abstract The expiration of the WTO Agreement on Textiles and Clothing (ATC) in January 2005 coincided with surges of China's apparel exports and apparent increases in China's cotton imports, the former of which has led to trade conflicts between China and its main trading partners, and the latter of which has seemingly prompted China to relax its restrictions on cotton imports. Using monthly trade data, this study employs a vector autoregression model to investigate the interlinkages between China's and its competitors’ apparel exports to the EU and between China's apparel exports and its cotton imports. Our analysis shows that (1) there appears to be a downward-sloping and elastic demand curve for China's apparel products by the EU; (2) China's and its competitors’ apparel exports to the EU are imperfect substitutes and the “crowding out” effects of Chinese apparel exports seem to be modest in the EU market; (3) the interrelationship between China's apparel exports and its demand for imported cotton is f...

Impacts of agent information assumptions in forest sector modeling

The forest sector faces changing political paradigms and volatile policy measures. Policy makers rely on economic and biological models to inform them of the impacts and risks associated with both anticipated and unforeseen policies or shocks to the system. Assumptions about agents’ knowledge of future events are fundamental in all forms of models suggesting that the degree of information of future events may have large behavioral impacts. Despite the importance of this assumption, few studies have looked into what this difference in information may imply, and few studies have analyzed the importance of varying the degree of a priori information on the impacts of policy measures. This paper attempts to elucidate some of these impacts by comparing how an exogenous shock affects the Norwegian forest sector if the agents are assumed to have: (i) perfect information, (ii) information about the market shift only a limited time before its implementation or (iii) no a priori information. The shock analyzed is an import ban on all coniferous wood into Norway, which is possible if the Pinewood nematode (PWN) becomes more widespread in Europe. To examine this question, we adapt the Norwegian forest sector model NorFor to reflect perfect, limited and no prior information. The results indicate that if the agents anticipate the shock, they will begin to adjust harvest and production levels before it occurs. Due to high opportunity costs, harvest is reduced in the first periods to allow increases later. Bioenergy, with much lower profit than pulp and paper on the margin, is the hardest hit by the ban, while paper production is little affected. This may also be due to high capital costs in the paper industry and a perfectly elastic wood demand curve for bioenergy use. Substantial price increases for both raw materials and final products are suggested under either limited or perfect foresight. The analysis may provide useful insight about how agents react to sudden changes depending on their a priori information.

Nonparallel demand increases in an asymmetric Cournot oligopoly

We examine equilibrium responses of a Cournot oligopoly to two typical types of nonparallel demand increases. The results based on a linear demand curve show that in terms of profits, increases in demand that result in a more elastic demand curve are beneficial to every firm, with large firms benefiting disproportionately. In sharp contrast, only certain small firms benefit from demand increases that result in a more inelastic demand. Our results have implications in marketing and government policy making.

Calculation of the Elastic Demand Curve for a Day-Ahead Secondary Reserve Market

The level of secondary reserve needed in a power system is traditionally settled by system operators according to engineering criteria. This paper proposes a novel methodology to determine the optimum level of secondary reserve based on both engineering and economic criteria. Within the proposed approach a price elastic-quantity demand curve for the secondary reserve is built. This approach assumes that the provision of secondary reserve is made under a competitive market. In this market, the supply curve that collects the bids from generators providing secondary reserve is matched with the calculated elastic demand cost curve. The cross of the supply and demand curves determines the optimal level of secondary reserve and the price for provision of the service. The developed approach is illustrated with a case study based on the current day-ahead secondary reserve market in Spain.

Institutional Ownership and the Rise of Shelf Offerings in U.S. Equity Raisings

Shelf offerings have become the dominant method of issuing seasoned equity over the last decade. We find that the increased institutional ownership of U.S. public firms and in particular shelf issuers is the key determinant in the shift in SEO issue method over time. The increase in institutional ownership provides additional monitoring and mitigates the under-certification problem induced by shelf offerings and lowers issue costs. Firms with higher institutional ownership have a more elastic demand curve and there is less need for underwriters to build demand through marketing.

Time-Varying Effects of Oil Supply Shocks on the US Economy

We investigate how the dynamic effects of oil supply shocks on the US economy have changed over time. We first document a remarkable structural change in the oil market itself, i.e. a considerably steeper, hence, less elastic oil demand curve since the mid-eighties. Accordingly, a typical oil supply shock is currently characterized by a much smaller impact on world oil production and a greater effect on the real price of crude oil, but has a similar impact on US output and inflation as in the 1970s. Second, we find a smaller role for oil supply shocks in accounting for real oil price variability over time, implying that current oil price fluctuations are more demand driven. Finally, while unfavorable oil supply disturbances explain little of the Great Inflation, they seem to have contributed to the 1974/75, early 1980s and 1990s recessions but also dampened the economic boom at the end of the millennium.

How Might a Natural Resource Be Priced?

We try to develop a price theory for auctions of natural resources. We show that in our model of a uniform price mechanism with uncertain terminating bids, truthful revelation of price and quantity bids is a Nash Equilibrium of a game that incorporates this pricing information in its design. In the special case when all bidders have perfectly elastic demand curves, truthful revelation of price-bids is in fact a dominant strategy.

Dynamic Pricing for Time-Limited Goods in a Supplier-Driven Electronic Marketplace

Existing e-commerce systems employ a pull model of marketing where buyers, possibly through agents, search the e-market for suppliers offering the product of their choice. In contrast, the push model where suppliers' agents approach buyers with their products, has been relatively less investigated. Push strategies are particularly appropriate for commodities that have a short shelf-life and, therefore, an elastic demand curve, allowing suppliers to exploit unexpected supply. The speed and low cost of e-commerce makes it particularly suited to the push paradigm. In this paper, we consider time-limited goods in a supplier driven marketplace that employs the push model of marketing. When constrained by a strict deadline to sell the good, the supplier uses a mobile sales agent that visits every buyer and estimates the short run demand curve of the good. At every buyer, the sales agent also employs a heuristic technique called the Maximum Returns Algorithm to recalculate the price of the good, so that the supplier can obtain the best possible gross returns from trading with the buyers. On the other hand, when the deadline to sell is not stringent, the sales agent negotiates the exchange at a point that improves both the buyer's utility and the supplier's profit, as compared to the exchange point without negotiation.

Demand Curves for European Stocks Slope Down Too

The 2000 implementation of float-capitalization index weights in the Dow Jones STOXX-super-SM indices changed the demand for large European stocks. In this paper, we test for imperfect-substitution and price-pressure effects due to the change in the demand for stocks. Our results show that we cannot reject complete reversal after eight weeks of abnormal trading volume for companies with both decreased or increased index weights. This result is consistent with the existence of downward sloping demand curves for stocks. Contrary to the fundamental assumption of perfectly elastic demand curves in asset pricing theories, our findings suggest that a price pressure effect is not a plausible explanation.

The Role of Exclusive Territories in Producers' Competition

The central objective of this paper is to show how vertical restraints, which affect intra-brand competition, can and will be used as an effective mechanism for reducing inter-brand competition and increasing producer profits. We show how exclusive territories alter the perceived demand curve, making each producer believe he faces a less elastic demand curve, thereby inducing an increase of the equilibrium price. The use of exclusive territories may increase producers' profits, even if the producers cannot charge franchise fees, and so cannot recapture, from the retailers, the monopoly rents they earn from their exclusive territory: we show that 'double marginalization' effects can be overcome by the strategic effect on producers' competition. We provide a model in which we can clearly specify the full range of feasible contracts between producers and retailers, and show that it is always a dominant strategy for firms to use exclusive territories (so that exclusive territories are used in equilibrium) and that the best situation from the producers' viewpoint may or may not entail franchise fees. In all cases, exclusive territories hurt consumer surplus and reduce total welfare, which yields a different light on vertical restraints from a competition policy perspective.

ADVERTISING, CONCENTRATION AND PROFITABILITY IN MANUFACTURING

This paper predicts an inverted‐LI relationship between concentration and advertising only for oligopolistic industries facing relatively less elastic demand curves. It rejects the inverted‐LI theory based on the hypothesis that the large firms collude and lends empirical support to the idea that causation runs from Concentration to advertising intensity. By confirming that the effect of advertising on profitability is significant and greater for industries producing homogeneous goods than for those producing heterogeneous goods, this study fails to support the barriers‐to‐entry hypothesis.

A General Analysis of the Output Effect Under Third-Degree Price Discrimination

Ever since Pigou's (I929) classic work, economists have been in widespread agreement that any theoretical analysis of the problems of price discrimination must address itself to the question of whether total output is greater or less in simple monopoly than it is in third-degree price discrimination. More than 50 years ago, Joan Robinson (I933) advanced the local 'adjusted concavity' criterion to answer this question. Robinson considered a monopoly selling in two sub-markets and advanced two fundamental propositions: (A) If the more elastic demand curve is concave and the less elastic curve is a straight -line or is convex, then the total output will be greater under discrimination than under simple monopoly (p. I93). (B) If both curves are strictly concave or convex, output under discrimination will be greater (less) than the simple monopoly output according to whether the 'adjusted concavity' is smaller for the more (less) elastic demand curve (p.

Optimal Strategic Petroleum Reserve Policies: A Steady State Analysis

A simple model is presented which allows us to determine the optimal size, fillup, and drawdown rates for a Strategic Petroleum Reserve (SPR) under a variety of supply and demand conditions. The optimal policy variables are determined by minimizing an analytic expression which we derive for the expected insecurity cost rate to the U.S. due to uncertainty in supply of imported oil. The oil market is modeled in terms of an elastic demand curve and two levels of supply which alternate according to a stationary, continuous time Markov process. The SPR policy is characterized by a fixed fillup rate up to the reserve's capacity, when supply is at its normal level, and a fixed drawdown rate during shortages. The insecurity cost rate being minimized includes consumer welfare loss due to price hikes, reserve holding cost and capital appreciation of the reserve. Base case results and sensitivity analysis are presented and compared to results obtained by previous approaches. These comparisons suggest that the proposed model can reasonably approximate the more computationally demanding stochastic dynamic programming formulation. The main advantage of the new approach is that it permits extensive sensitivity analysis which is important given the quality of the data.