Chapter16

# Chapter16 - (b p d = p s t(c equilibrium happens when D p d...

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Chapter 16 - Equilibrium 1. Supply curves - measure amount the supplier wants to supply at each price review idea of net supply from Chapter 9 2. Equilibrium (a) competitive market - each agent takes prices as outside his or her control many small agents a few agents who think that the others keep fixed prices (b) equilibrium price - that price where desired demand equals desired supply D ( p ) = S ( p ) (c) special cases (see figure 16.1. in the textbook) vertical supply - quantity determined by supply, price determined by demand horizontal supply - quantity determined by demand, price determined by supply (d) an equivalent definition of equilibrium: where inverse demand curve crosses inverse supply curve P d ( q ) = P s ( q ) (e) examples with linear curves 3. Comparative statics (a) shift each curve separately (b) shift both curves together 4. Taxes - nice example of comparative statics (a) demand price and supply price - different in case of taxes

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Unformatted text preview: (b) p d = p s + t (c) equilibrium happens when D ( p d ) = S ( p s ) (d) put equations together: • D ( p s + t ) = S ( p s ) • or D ( p d ) = S ( p d-t ) (e) also can solve using inverse demands: • P d ( q ) = P s ( q ) + t 1 • or P d ( q )-t = P s ( q ) (f) see Fgure 16.3. and Fgure 16.4. in the textbook 5. Passing along a tax (see Fgure 16.5. in the textbook) (a) ±at supply curve (b) vertical supply curve 6. Deadweight loss of a tax (see Fgure 16.7. in the textbook) (a) beneFts to consumers (b) beneFts to producers (c) value of lost output 7. Pareto e²ciency (a) e²cient output is where demand equals supply (b) because that is where demand price equals supply price (c) that is, the marginal willingness to buy equals the marginal willingness to sell (d) deadweight loss measures loss due to ine²ciency 2...
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