#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4 #summary
Sometimes auctions are used to seek equilibrium prices. Common value auctions sell items that have the same value to all bidders, but bidders can only estimate that value before the auction is completed. Overly optimistic bidders overestimate the true value and end up paying a price greater than that value. This result is known as the winner’s curse. Private value auctions sell items that (generally) have a unique subjective value for each bidder. Ascending price auctions use an auctioneer to call out ever increasing prices until the last, highest bidder ultimately pays his/her bid price and buys the item. Descending price, or Dutch, auctions begin at a very high price and then reduce that price until one bidder is willing to buy at that price. Second price sealed bid auctions are sometimes used to induce bidders to reveal their true reservation prices in private value auctions. Treasury notes and some other financial instruments are sold using a form of Dutch auction (called a single price auction) in which competitive and non-competitive bids are arrayed in descending price (increasing yield) order. The winning bidders all pay the same price, but marginal bidders might not be able to fill their entire order at the market clearing price.
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SUMMARYven price, the quantity demanded exceeds the quantity supplied, there is excess demand and price will rise. If, at a given price, the quantity supplied exceeds the quantity demanded, there is excess supply and price will fall.
<span>Sometimes auctions are used to seek equilibrium prices. Common value auctions sell items that have the same value to all bidders, but bidders can only estimate that value before the auction is completed. Overly optimistic bidders overestimate the true value and end up paying a price greater than that value. This result is known as the winner’s curse. Private value auctions sell items that (generally) have a unique subjective value for each bidder. Ascending price auctions use an auctioneer to call out ever increasing prices until the last, highest bidder ultimately pays his/her bid price and buys the item. Descending price, or Dutch, auctions begin at a very high price and then reduce that price until one bidder is willing to buy at that price. Second price sealed bid auctions are sometimes used to induce bidders to reveal their true reservation prices in private value auctions. Treasury notes and some other financial instruments are sold using a form of Dutch auction (called a single price auction) in which competitive and non-competitive bids are arrayed in descending price (increasing yield) order. The winning bidders all pay the same price, but marginal bidders might not be able to fill their entire order at the market clearing price.
Markets that work freely can optimize society’s welfare, as measured by consumer surplus and producer surplus. Consumer surplus is the difference between the total value Summary
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