Chapter sixteen Equilibrium
Chapter Sixteen Equilibrium
Market equilibrium eA market is in equilibrium when total quantity demanded by buyers equals total quantity supplied by sellers
Market Equilibrium ◆A market is in equilibrium when total quantity demanded by buyers equals total quantity supplied by sellers
Market equilibrium Market Market demand supply gEs(p) D(p*)=S(p*); the market is in equilibrium p qED(p) q D(p),s(p)
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 b+d *a-c ad+ bc and q =D(p)=S(p)= b+d
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 e Can we calculate the market equilibrium using the inverse market demand and supply curves? e Yes. it is the same calculation
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-bps>p a-a D(q), b the equation of the inverse market demand curve, And q=S(P)=c+dp分p -C+q-s(a d the equation of the inverse market supply curve
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 ◆Two special cases: ⚫quantity supplied is fixed, independent of the market price, and ⚫quantity supplied is extremely sensitive to the market price
Market equilibrium Market Market quantity supplied is demand fixed, independent of price S(p)=C+dp, so d=0 andS(p)≡c D-1(g)=(a-g)/b gc q
Market Equilibrium S(p) = c+dp, so d=0 and S(p) c. p q* = c q D-1 (q) = (a-q)/b Market demand Market quantity supplied is fixed, independent of price
Market equilibrium Market Market quantity supplied is demand extremely sensitive to price. s1(q)=p* p D-1(g)=(a-q)/b q
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 st paid on each unit traded cIf 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 ◆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
