Varian_Chapter16_Equilibrium

Varian_Chapter16_Equilibrium - Chapter Sixteen Equilibrium...

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Chapter Sixteen Equilibrium
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Market Equilibrium ± A market is in equilibrium when total quantity demanded by buyers equals total quantity supplied by sellers.
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Market Equilibrium p D(p) q=D(p) Market demand
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Market Equilibrium p S(p) Market supply q=S(p)
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Market Equilibrium p D(p), S(p) q=D(p) Market demand Market supply q=S(p)
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Market Equilibrium p D(p), S(p) q=D(p) Market demand Market supply q=S(p) p* q*
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Market Equilibrium p D(p), S(p) q=D(p) Market demand Market supply q=S(p) p* q* D(p*) = S(p*); the market is in equilibrium.
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Market Equilibrium p D(p), S(p) q=D(p) Market demand Market supply q=S(p) p* S(p’) D(p’) < S(p’); an excess of quantity supplied over quantity demanded. p’ D(p’)
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Market Equilibrium p D(p), S(p) q=D(p) Market demand Market supply q=S(p) p* S(p’) D(p’) < S(p’); an excess of quantity supplied over quantity demanded. p’ D(p’) Market price must fall towards p*.
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Market Equilibrium p D(p), S(p) q=D(p) Market demand Market supply q=S(p) p* D(p”) D(p”) > S(p”); an excess of quantity demanded over quantity supplied. p” S(p”)
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Market Equilibrium p D(p), S(p) q=D(p) Market demand Market supply q=S(p) p* D(p”) D(p”) > S(p”); an excess of quantity demanded over quantity supplied. p” S(p”) Market price must rise towards p*.
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Market Equilibrium ± An example of calculating a market equilibrium when the market demand and supply curves are linear. Dp a bp () = Sp c dp = +
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Market Equilibrium p D(p), S(p) D(p) = a-bp Market demand Market supply S(p) = c+dp p* q*
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Market Equilibrium p D(p), S(p) D(p) = a-bp Market demand Market supply S(p) = c+dp p* q* What are the values of p* and q*?
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Market Equilibrium Dp a bp () = Sp c dp = + At the equilibrium price p*, D(p*) = S(p*).
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Market Equilibrium Dp a bp () = Sp c dp = + At the equilibrium price p*, D(p*) = S(p*). That is, ab p cd p −= + **
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Market Equilibrium Dp a bp () = Sp c dp = + At the equilibrium price p*, D(p*) = S(p*). That is, ab p cd p −= + ** which gives p ac bd * = +
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Market Equilibrium Dp a bp () = Sp c dp = + At the equilibrium price p*, D(p*) = S(p*). That is, ab p cd p −= + ** which gives p ac bd * = + and qD p S p ad bc * . === + +
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Market Equilibrium p D(p), S(p) D(p) = a-bp Market demand Market supply S(p) = c+dp p ac bd * = + d b bc ad q * + + =
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Market Equilibrium ± Can we calculate the market equilibrium using the inverse market demand and supply curves?
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Market Equilibrium ± Can we calculate the market equilibrium using the inverse market demand and supply curves? ± Yes, it is the same calculation.
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Market Equilibrium qD p ab p p aq b Dq == = = () , 1 qS p cd p p cq d Sq + = + = , 1 the equation of the inverse market demand curve. And the equation of the inverse market supply curve.
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Market Equilibrium q D -1 (q), S -1 (q) D -1 (q) = (a-q)/b Market inverse demand Market inverse supply S -1 (q) = (-c+q)/d p* q*
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Market Equilibrium q D -1 (q), S -1 (q) D -1 (q) = (a-q)/b Market demand S -1 (q) = (-c+q)/d p* q* At equilibrium, D -1 (q*) = S -1 (q*).
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Varian_Chapter16_Equilibrium - Chapter Sixteen Equilibrium...

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