ch04.1-systems-of-equations-comparative-statics

ch04.1-systems-of-equations-comparative-statics - G = G 1...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Systems of Equations and Comparative Statics Professor Erkut Ozbay Economics 300
Background image of page 1

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

View Full DocumentRight Arrow Icon
Systems of equations Model many participants Model many markets Model many related variables Solving systems of equations Comparative statics Find impact of change in exogenous variable on endogenous variables
Background image of page 2
Supply and demand 2 4 6 8 1 0 2 10 S D S D Q P Q P Q Q = - = - = Q P 2 10 2 12 6 4 S D P P P P Q Q - = - = = = =
Background image of page 3

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

View Full DocumentRight Arrow Icon
Supply and Demand • Demand equation Q D = a – bP + cG G = price of substitute good a, b, c > 0 are parameters • Supply equation Q S = d + eP • Balance equation Q D = Q S = Q Substitute into balance equation d + eP = a – bP + cG Solve for P (b + e)P = a – d +cG P = (a – d +cG)/(b+e) • Plug P into Q S or Q D Q = d + e(a – d +cG)/(b+e)
Background image of page 4
Comparative statics: Increase in price of substitute, G P P 1 P 0 Q Q 0 S D 0 D 1 P Q D = a – bP + cG Q S = d + eP c G Q 1 Q
Background image of page 5

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

View Full DocumentRight Arrow Icon
Comparative statics How does change in exogenous variable G impact endogenous variables P and Q? P = (a – d +cG)/(b+e) Q = d + e(a – d +cG)/(b+e) 2200 ∆
Background image of page 6
Background image of page 7

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

View Full DocumentRight Arrow Icon
Background image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: G = G 1 – G ; ∆ P = P 1 – P ; ∆ Q = Q 1 – Q • P 1 = (a – d +cG 1 )/(b+e) P = (a – d +cG )/(b+e) 2200 ∆ P = ∆ G c/(b + e) • Q 1 = d + e(a – d +cG 1 )/(b+e) Q = d + e(a – d +cG )/(b+e) 2200 ∆ Q = ∆ G ec/(b + e) Exercise: Solve for x, y, z • x = 6z + 3h – 4a + 10 • y = 4z – h + 6 • x = y • Substitute 1 st and 2 nd into 3 rd 6z + 3h – 4a + 10 = 4z – h + 6 • Solve for z 2z = 4a – 4h – 4 ⇒ z = 2a – 2h – 2 • Substitute z into 1 st and 2 nd x = 12a – 12h – 12 + 3h – 4a + 10 = 8a – 9h – 2 y = 8a – 8h – 8 – h + 6 = 8a – 9h – 2 Exercise: Impact of ∆ h = 3 • x = 8a – 9h – 2 • y = 8a – 9h – 2 • z = 2a – 2h – 2 2200 ∆ x = – 9 ∆ h = – 27 2200 ∆ y = – 9 ∆ h = – 27 2200 ∆ z = – 2 ∆ h = – 6...
View Full Document

This note was uploaded on 02/03/2012 for the course ECON 300 taught by Professor Cramton during the Fall '08 term at Maryland.

Page1 / 8

ch04.1-systems-of-equations-comparative-statics - G = G 1...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online