Tsinghua Micro Ch16 021025

# Tsinghua Micro Ch16 021025 - Chapter Sixteen Equilibrium...

This preview shows pages 1–14. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter Sixteen Equilibrium Market Equilibrium A market is in equilibrium when total quantity demanded by buyers equals total quantity supplied by sellers. 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. An Example 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 * * * ( ) ( ) . = = = + + Market Equilibrium Can we calculate the market equilibrium using the inverse market demand and supply curves? Yes, it is the same calculation. 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. Market Equilibrium Two special cases: quantity supplied is fixed, independent of the market price, and quantity supplied is extremely sensitive to the market price. Market Equilibrium S(p) = c+dp, so d=0 and S(p) c. p q q* = c D-1 (q) = (a-q)/b Market demand Market quantity supplied is fixed, independent of price. Market Equilibrium Market quantity supplied is extremely sensitive to price. S-1 (q) = p*. p q p* D-1 (q) = (a-q)/b Market demand Quantity Taxes A quantity tax levied at a rate of \$t is a tax of \$t paid on each unit traded. If the tax is levied on sellers then it is an excise tax . If the tax is levied on buyers then it is a sales tax . Quantity Taxes What is the effect of a quantity tax on a markets equilibrium? How are prices affected? How is the quantity traded affected? Who pays the tax? How are gains-to-trade altered? Quantity Taxes A tax rate t makes the price paid by buyers, p b , higher by t from the price received by sellers, p s . p p t b s- = Quantity Taxes Even with a tax the market must clear. I.e. quantity demanded by buyers at price p b must equal quantity supplied by sellers at price p s ....
View Full Document

## This note was uploaded on 12/06/2011 for the course BUSINESS MicroEco taught by Professor Luyu during the Spring '11 term at Tsinghua University.

### Page1 / 52

Tsinghua Micro Ch16 021025 - Chapter Sixteen Equilibrium...

This preview shows document pages 1 - 14. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online