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Unformatted text preview: Dr. Balkin GRAPHIC EXERCISE: QUALITATIVE COMPARATIVE STATIC ANALYSIS OF COMPETITIVE MARKETS simple and Abbreviated Market Model: Demand ?unction: 4* Rd m f (Pricex, inccme. Other Things) Supply Function: X3 = g (Pricex, Frice of Inputs. Other Stuff) Equilibrium Condition: Rd 3 XS Qe mm
m
a“ The signs above the variables indicate the hypothesized sign of the
direction of impact on the left side variable. Graph each of the eight cases and indicate for each case whether each
outcome has increased (cu. decreased 14,}. not changed(ﬂ¢£§) or can‘t
determine direction of change [?}. {4‘or¢orm§f’~nr '2} Equilibrium Quantity of X Equilibrium Price of X demanded of X OUTCOMES; Change in Demand for X Change in Supply for X Change in Change in Change in (just the) quantity
Change in (just tne) quantity EIGHT CASES: Case
Case
Case
Case
Case C356 Case 7: Case 8: aewmw 0} coneumers’
consunora' the price of an input
the price at an input consuhora‘
decreased.
connumers'
increased.
ccnsumere'
increased.
consumers'
decreased. supplied Of X increased.
decreased. income has
income has has decreased.
income has increased and the price
caterie paribus.
income has increased and the price
ceteris paribus.
income has decreased and the price
ceterie paribus.
income has decreased and the price
ceterie paribus. ceteris paribue. ceterie paribue. J
has increased. ceteris parihus.
ceteris paribue. cf an input has
of an input has
of an input has of an input has Example: Case 1: Consumers' income has increased, ceteris paribus. Price of x 6w?“ 0: i .
___..._+—.:>4 _______________________________  CQ'GQL Quantity of x Change in Demand for XII /T~
{shift or demand curve) Change in Supply for x  ' WA
{shift of supply curve} Change in E ilibrium Quantity of X
(value a x at demand—supp y intersection} Change in Equilibtium Price of x ‘ /T*
(value of Px at demand—supply intersection) Change in {just the] quantity demanded of x  rﬁllﬁ
(only a movement along a fixed demand curve) Change in (just the} quantity supplied at x 1\
{only a mavemant along a fixed supply curve) 4E, ViqATJi Pﬁwahﬁlf ‘ Example: Case 5: consumers! income has increased and the price at an inpw*
has decreased, cetarls paribus. Hulk, HaMJ G) Quantity of X When both the demand and supply curve shift. the outcome of either
equilibrium price or equilibrium quantity will depend on the relative
magnitudes of the size of the shifts. Therefore, ambiguity on ONE of
these outcome dimensions exists. To determine on which dimension (equilibrium P or equilibrium Q) the ambiguity lies. one needs to use th
following market matrix: _uqm¢m—mm—u————mmo—n ——~._—_———qpmn———w_——q. —n——————_~p»_uu——— 4am—_—uwm——g——n—nu——quu~_n <. by #125244) .
“r2721: EQCeci P ’T‘
‘bejeﬁ4xet~ ‘ {ékchange in Demand for 3
Change in Supply for x Change in Equilibrium Quantity of x Change in Equilibrium Frice of X ...
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 Spring '10
 luman
 Accounting

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