Mathematically, scarcity rent is the shadow price of the physical stock constraint given that a market equilibrium
is defined as maximizing the sum of producer and consumer surplus.
Similarly, applying the balance of trade equilibrium Equation (8), Equation (7) that expresses the market equilibrium of Northern goods could then be rewritten as
Let's start with the short run analysis where the market equilibrium is achieved in both regions.
This section examines this link between the availability of reinsurance and primary insurance capacity by examining the market equilibrium in the reinsurance market in terms of the reinsurance premium defined in equation (1).
At the same time, analyzing the reinsurance market equilibrium requires an examination of the available supply of reinsurance for catastrophic levels of risk.