Equilibrium

# Equilibrium - III Equilibrium in Markets III Equilibrium in...

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III. Equilibrium in Markets Equilibrium: A market is in equilibrium if no agent (i.e., no consumer or firm has any incentive) has any incentive to change his actions. Solving: table, graph, equation. Equilibrium price: P* = \$7 Equilibrium quantity: Q* = 3 Graphically Mathematically Demand: P=10-1Qd Supply: P = 1 + 2 Qs Equilibrium: Find P* and Q* such that Qd = Qs = Q* IV. Applications of the Demand and Supply Framework Markets for Goods The supply and demand apparatus can be used to make predictions about changes in prices or quantities of goods bought and sold in response to underlying factors affecting supply and demand (e.g., technology, income, number of consumers, tastes, etc.) These predictions may be qualitative (i.e., involve directions of changes in prices or PQ d Q s 11 0 5 10 0 4.5 914 82 3 . 5 733 64 2 . 5 552 46 1 . 5 371 28 0 . 5 190

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quantities) or quantitative (if one has the actual estimates of demand and supply equations). Examples. (1) Qualitative (2) Quantitative Demand function: Qd =6.0-1P+.5Ptea-.5Psugar+1N+.1*M Psugar = \$1, N = 1, M = 20, Ptea = \$3 Supply function: Qs = .5 P - .5
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Equilibrium - III Equilibrium in Markets III Equilibrium in...

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