10-MS&E-241-Market-Equilibrium

10-MS&E-241-Market-Equilibrium - MS&E 241:...

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MS&E 241: ECONOMIC ANALYSIS Thomas A. Weber 10. Market Equilibrium Winter 2007 Stanford University Copyright © 2007 T.A. Weber All Rights Reserved -2- MS&E-241-Winter-2007-TAW AGENDA Market Analysis Partial Equilibrium General Equilibrium: The Standard Model Pure Exchange Production Economies Key Concepts to Remember
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-3- MS&E-241-Winter-2007-TAW MARKET SYSTEM FUNCTIONING SO FAR Focused on choices of individuals: consumers and firms “Optimal” choice in choice set/production possibilities set Expenditure/Cost functions Demand/Supply functions Laid foundation for market demand and supply functions Can aggregate individual consumers’/firms’ demand/supply functions to obtain market demand/supply functions Some market interaction Monopolistic or monopsonistic firms: market power Price discrimination of heterogeneous consumer base -4- MS&E-241-Winter-2007-TAW MARKET SYSTEM FUNCTIONING: NEXT STEPS Start with market demand and supply functions Determine market interaction for competitive firms Price determination Market quantity determination We have already discussed interaction for monopolies or monopsonies. Will discuss oligopolies later. Move to interactions with multiple markets Assumption of competitive firms Progress to interactions throughout entire economy
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-5- MS&E-241-Winter-2007-TAW Market System Functioning Two modes of analysis Positive (Descriptive, Predictive) - How can we characterize interactions? · Market equilibrium · Market dynamics - Comparative statics · How will equilibrium prices and quantities change in response to external changes? Normative (Desirable: Efficiency, Equity) - How could we characterize “good” outcomes? · Efficient · Equitable Combining the two modes Will predicted outcomes be the same as “good” outcomes? If not, how would they differ? -6- MS&E-241-Winter-2007-TAW Supply (Industry, Consumers) Supply Functions Demand (Industry, Consumers) Demand Functions Market Equilibrium State Adjustment to Equilibrium Quantity Supplied Quantity Demanded Market Price SINGLE-MARKET ANALYSIS
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-7- MS&E-241-Winter-2007-TAW Polysilicon Feedstock Industry Industries Using Polysilicon Feedstock Polysilicon Market Polysilicon Quantity Supplied Polysilicon Quantity Demanded Polysilicon Market Price SINGLE-MARKET ANALYSIS: EXAMPLE http://www.renewableenergyaccess.com/rea/news/story?id=41508 -8- MS&E-241-Winter-2007-TAW POLYSILICON MANUFACTURING AND SUPPLY CHAIN Source: http://www.renewableenergyaccess.com/rea/news/story?id=41508 Polysilicon
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-9- MS&E-241-Winter-2007-TAW Polysilicon Feedstock Microchips Polysilicon Market Q S PS p PS Solar Cells Computers Solar Systems Solar Cell Market Microchip Market Computer Market Solar System Market q D PS q S SC q D SC p SC q S MC q D MC p C p PS p PS p MC p MC q S C q D C p C p SC p SS q D SS p SS MULTI-MARKET ANALYSIS: EXAMPLE -10- MS&E-241-Winter-2007-TAW Market Economy Ownership of assets (factors of production, outputs) Ability to buy and sell (trade) in markets Members of the economy own firms
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10-MS&E-241-Market-Equilibrium - MS&E 241:...

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