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-g D(9 the equation of the inverse market demand curve, And q=S(P)=c+dp分p= c+a-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 EC 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-g)/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 st is a tax of st paid on each unit traded cIf the tax is levied on sellers then it is an excise tax o 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