Interaction in Perfectly Competitive Markets

The demand of consumers and the supply of producers meet in a market. The market price lies at the intersection between the demand and supply curve. An important question is whether a perfectly competitive market can reach an equilibrium. One can describe the shape of the demand curve by using the concept of price elasticity. A demand is elastic when a small change in price leads to large changes in quantity. It is inelastic when a large change in price leads to small changes in quantity. The aggregated demand curve informs professionals about the consumers' willingness to pay. A decrease in price will increase the consumer surplus as long as there are no changes to the demand curve. What happens to the producer surplus depends on the elasticities. Professionals can distinguish different supply curves which reflect the reaction possibilities of the producers. This reaction depends on the time available to the producers when demand increases.