Coursenotes_ECON301

Marginal cost we know that the marginal cost of good

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Unformatted text preview: use once we have the equilibrium factor prices (r,w), we can always calculate the equilibrium output prices PX and PY accordingly. In other words, instead of solving for four equilibrium prices (PX, PY, r, w), we need only solve for two equilibrium factor prices (r,w). Alright, now we have considered the consumer and the producer but what about the goods market? On the demand side, we have individual consumer demands XA , YA , XB and YB while on the supply side we have output supplies produced by the two producers. All we need to do now is to equate the demand side with the supply side... MARKET FOR GOOD X On the demand side, we have individual consumer demands for good X. XA = XA(PX, PY, r, w) XB = XB(PX, PY, r, w) and aggregate demand for good X X = XA(r, w) + XB(r, w) X = X(r , w) On the supply side, producer X provides QX as the market supply of good X. At market equilibrium, the output supply of good X must equal the aggregate demand of good X. QX = X(r , w) That is, producer X must produce just enough good X to satisfy the market demands (i.e. leaving neither surplus nor shortage). In other words, the market equilibrium MARKET FOR GOOD Y On the demand side, we have individual consumer demands for good Y. YA = YA(PX, PY, r, w) YB = YB(PX, PY, r, w) and aggregate demand for good Y Y = YA(r, w) + YB(r, w) Y = Y(r, w) On the supply side, producer Y provides QY as the market supply of good Y. At market equilibrium, the supply of good Y must equal the aggregate demand of good Y. QY = Y(r , w) That is, producer Y must make just enough good Y to satisfy the market demands (i.e. leaving neither surplus nor shortage). In other words, the market 134 condition for good X allows us to determine the output supply QX. equilibrium condition for good Y allows us to determine the output supply QY. We find the factor market equilibrium using the same basic principle of demand equal to supply in each market. MARKET FOR CAPITAL On the demand side, we have the individual producer demands for capital KX(r, w) = kX QX KY(r, w) = kY QY and aggregate demand for capital K = KX(r, w)...
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This note was uploaded on 05/25/2010 for the course ECON 301 taught by Professor Sning during the Spring '10 term at University of Warsaw.

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