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Unformatted text preview: Microeconomic Theory Econ 101A Fall 2008 GSI: Eva Vivalt Section Notes 4: Equilibrium, Comparative Statics, and Elasticities 1 Competitive Equilibrium 1.1 Prelude with Assumptions We let D(p) be a downward-sloping dD ( p ) dp < 0 aggregate market demand and S(p) be an upward-sloping dS ( p ) dp > aggregate market supply for a certain homogenous good with price p. In partial equilibrium analysis, we generally ignore dependence of these functions on other output or input prices, as well as income, or if we do we only look at one of these variables at a time. Further, we will assume that markets are perfectly competitive. All consumers face the same demand price p D and purchase Q D = D ( p D ). Similarly, all producers face the same supply price p S and sell a total of Q S = S ( p S ). Absent intervention, the supply and demand prices will be equal, p D = p S . 1.2 The Equilibrium Condition In a competitive market, we have four unknowns ( Q D ,Q S ,p D ,p S ) which are set by the following four equations: Q D = D ( p D ) (1) Q S = S ( p S ) (2) p D = p S (3) Q D = Q S (4) We can in general find the quantities that are demanded and supplied ( Q D and Q S ) by reading them from the demand and supply curves at the appropriate prices; those equations (1) and (2) are basically...
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This note was uploaded on 04/01/2009 for the course ECON 101a taught by Professor Staff during the Fall '08 term at University of California, Berkeley.
- Fall '08