STANDARD MODELING OF A COMPETITIVE MARKET

This chapter discusses the standard economic modeling of a competitive market, stressing aspects relevant for the operations of current US RTO/ISO‐managed wholesale power markets. A quantity‐price combination for a competitive market is called a competitive market clearing (CMC) point for this market if plots of the aggregate demand schedule and aggregate supply schedule (with flat segments included) intersect. The quantity is called a CMC output level, and the price is called a CMC price level. The CMC points for a competitive market can be multiple, unique, or non‐existent at any given point in time. To convey with clarity the efficiency implications of CMC points for a competitive market, the concept of “net surplus” must first be explained. Economists adhere to the market efficiency metric for a competitive market because they are concerned that efficiency be achieved in both the short and longer run.