16s - © 2010 W W Norton& Company Inc 16 Equilibrium ©...

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Unformatted text preview: © 2010 W. W. Norton & Company, Inc. 16 Equilibrium © 2010 W. W. Norton & Company, Inc. 2 Market Equilibrium  A market is in equilibrium when total quantity demanded by buyers equals total quantity supplied by sellers. © 2010 W. W. Norton & Company, Inc. 3 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. © 2010 W. W. Norton & Company, Inc. 4 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’) © 2010 W. W. Norton & Company, Inc. 5 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*. © 2010 W. W. Norton & Company, Inc. 6 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”) © 2010 W. W. Norton & Company, Inc. 7 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*. © 2010 W. W. Norton & Company, Inc. 8 Market Equilibrium  An example of calculating a market equilibrium when the market demand and supply curves are linear. D p a bp ( )   S p c dp ( )   © 2010 W. W. Norton & Company, Inc. 9 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*? © 2010 W. W. Norton & Company, Inc. 10 Market Equilibrium D p a bp ( )   S p c dp ( )   At the equilibrium price p*, D(p*) = S(p*). That is, a bp c dp    * * which gives p a c b d *    and q D p S p ad bc b d * * * ( ) ( ) .      © 2010 W. W. Norton & Company, Inc. 11 Market Equilibrium p D(p), S(p) D(p) = a-bp Market demand Market supply S(p) = c+dp p a c b d *    d b bc ad q *    © 2010 W. W. Norton & Company, Inc. 12 Market Equilibrium  Can we calculate the market equilibrium using the inverse market demand and supply curves?  Yes, it is the same calculation. © 2010 W. W. Norton & Company, Inc. 13 Market Equilibrium q D p a bp p a q b D q         ( ) ( ), 1 q S p c dp p c q d S q          ( ) ( ), 1 the equation of the inverse market demand curve. And the equation of the inverse market supply curve. © 2010 W. W. Norton & Company, Inc. 14 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* © 2010 W. W. Norton & Company, Inc....
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This note was uploaded on 06/12/2011 for the course ECON 101 taught by Professor Dee during the Spring '10 term at Andhra University.

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16s - © 2010 W W Norton& Company Inc 16 Equilibrium ©...

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