Explain the key interactions of agents in the model, and how the market outcome is determined.

You are now asked to give a concise, non-mathematical review of two of the following models:
a. The Price Leadership Model
b. The Cournot Model
c. The Stackelberg’s Model
d. The Bertrand’s Price Competition Model
(Select TWO models of your choice.)
For each model, you should present your review following these instructions:
• Provide a one-sentence definition of the model.
• Explain the key interactions of agents in the model, and how the market outcome is determined.
• Comment on applicability of the model: Find four (4) relevant applications of the model conducting your own research.
• Comment on the implications of the model for the design of policy tools.
Word limit: 300 words per model, excluding list of references.
No equations or theoretical diagrams should be used in your answer.
Provide your answer as a single paragraph.

Answer & Explanation

Solved by verified expert

In economics, agents refer to individuals or entities that engage in economic activities such as buying and selling goods and services. The interactions of agents in a market model are fundamental to understanding how the market outcome is determined.

In a typical market model, agents include buyers and sellers. Buyers are individuals or entities that demand goods and services, while sellers are those who supply goods and services. The interaction between buyers and sellers leads to the determination of the equilibrium price and quantity in the market.

The key interactions between buyers and sellers are based on the principles of supply and demand. The law of demand states that when the price of a goo

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Step-by-step explanation

d or service increases, the quantity demanded by buyers decreases, while the law of supply states that when the price of a good or service increases, the quantity supplied by sellers increases.

As buyers and sellers interact in the market, they negotiate on the price of goods and services. When the demand for a particular good or service is high, buyers are willing to pay a higher price, which leads to an increase in the price of the good. On the other hand, when the supply of a particular good or service is high, sellers are willing to lower the price to attract buyers. This negotiation process between buyers and sellers continues until a point is reached where the quantity demanded by buyers is equal to the quantity supplied by sellers.

At this point, the market is said to be in equilibrium, and the price and quantity at which this equilibrium is reached is called the equilibrium price and quantity. The equilibrium price and quantity represent the market outcome, which is determined by the interactions of buyers and sellers in the market.

In summary, the interactions between buyers and sellers in a market model are based on the principles of supply and demand. These interactions lead to the negotiation of prices for goods and services until a point is reached where the quantity demanded by buyers is equal to the quantity supplied by sellers, resulting in the market equilibrium price and quantity.

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