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Ch_3_Eqm_ana_in_Econ

Ch_3_Eqm_ana_in_Econ

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Published by Prince Palash

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Published by: Prince Palash on Jun 18, 2012
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04/20/2015

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Chapter 3 Equilibrium analysis in Economics
3-1
 
Chapter 3Equilibrium Analysis in Economics---------------------------------------------------------------------
 
Studies or analysis of Economics
1.
 
Static Analysis
 
Studies focus only on a particular period of time.
 2.
 
Comparative Analysis
 
Studies focus on the external forces that make equilibrium move to a newone.
 3.
 
 Dynamic Analysis
 
Studies focus on the change of time and how the equilibrium change withtime.Q
0
Q
1
PSDQ
P
0
Comparative Analysis
P
1
E
Static Analysis
PSDQ
P*Q*
E
 
 
Chapter 3 Equilibrium analysis in Economics
3-2
 
Dynamic AnalysisExample of dynamic analysis: Cobb-web Theorem
Variable
Converge
Time
Diverge
VariableTimeS
2
 
 
S
1
 
0321
PQPriceTimeP
t
 
P
1
 P
2
 P
3
 
DS
3
 S
t
(P
t
-1)
P
2
P
Q
2
Q
1
P
1
 
QD
t
(Pt)S
t
(P
t
-1)
P
2
 
P
Q
2
 Q
1
 P
1
 
QD
t
(Pt)
 
 
 
Chapter 3 Equilibrium analysis in Economics
3-3
 
3.1
 
Partial Market Equilibrium - A linear model
Identify equilibrium price & equilibrium quantity (endogenous)
Constructing the model
1.
 
Equilibrium conditionConditional equation Q
d
= Q
s
 2.
 
Demand equation: a decreasing linear function of P (P
, Q
d
 
)Behavioral equation Q
d
= a bP (a, b > 0)3.
 
Supply equation: an increasing linear function of P (P
, Q
s
 
)Behavioral equation Q
s
= -c + dP (c, d > 0)
Solution
Q
d
= a – bPQ
S
= -c + dPThe equilibrium conditionQ
d
= Q
s
 a bP = -c + dPa + c = bP + dPa + c = (b + d)PP
*
 
=
 
a+c b+d
 Q*
P
P
*
Q
d
= a - bPThe solution valuesare P
*
and Q
*
Q
s
= -c + dP
Q

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