nlecture13 - general equilibrium - slides

nlecture13 - general equilibrium - slides - Topic 6...

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2/11/2009 1 Topic 6: Competitive Markets (2) USC Marshal Introduction to general equilibrium Introduction to general equilibrium So far: – Analyzed markets largely in isolation – But the economy is a collection of interdependent markets • Consumer choice and producer choice are USC Marshal determined given the overall vector of prices Today: – How developments in one market trickle to other markets • How much a $0.50 tax on gasoline will affect the demand for SUVs? Introduction to general equilibrium General Equilibrium Analysis: – The study of competitive equilibrium in many markets at the same time • Understand the consequences of interdependencies among markets USC Marshal –The price of one good can affect the demand for another –The price of one good can affect the cost of producing another – While in practice, all markets are interdependent, generally focus on markets that are clearly dependent
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2/11/2009 2 General equilibrium analysis • What is the general equilibrium in the market for gasoline and SUVs, if – The demand and supply of gasoline are given by Q gas d 27 3 P gas P SUV USC Marshal – And the demand and supply of SUVs are given by Q gas s P gas 3 Q SUV d 8 1 2 P SUV 1 5 P gas Q SUV s 1 5 P SUV 2 General equilibrium analysis P gas P SUV USC Marshal Q gas Q SUV Q* gas P* gas P* SUV Q* SUV General equilibrium analysis • We know that for markets to clear, it needs to be that: – Using these market-clearing conditions, we get Q gas d Q gas s , Q SUV d Q SUV s USC Marshal combinations of P gas and P SUV that clear each of the markets
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2/11/2009 3 General equilibrium analysis P gas P gas market-clearing curve for gasoline USC Marshal Q gas P SUV D(P SUV =18) D(P SUV =10) D(P SUV =2) P* gas =3 P* gas =5 P* gas =7 18 3 10 5 2 7 General equilibrium analysis
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nlecture13 - general equilibrium - slides - Topic 6...

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