文档介绍:Chapter 9 Partial Equilibrium
z We consider price and quantity determination in a single market.
z But, what does it mean “a SINGLE market”?
petition
z In petitive market, both buyers and sellers are price takers. The
market price is simultaneously determined by the interaction of aggregate
demand and aggregate supply.
z But how? Centralized market mechanism
I
z Market demand for one good q : qd ()P = ∑qi ()P,yi , where yi is the e
i=1
of individual i , P is the price vector including all prices.
1. qd ()P gives the total amount of q demanded by all buyers in the market.
2. Both individual and market demands for q depend not only on the own
price, but also on the prices of all other goods.
3. Market demand depends both on the aggregate level of e, and on its
distribution among buyers.
4. Market demand is homogeneous of degree zero in all prices and all buyers’
es, following from homogeneity property of individual demand system.
J
z Market supply for the good q : q s ()p = ∑q j (p, w ), where p is the price of
j=1
this good and w is the price vector of inputs.
1. In the short-run, there is at least one input fixed to the firm, who decides
whether to produce or not. (see above J is fixed)
2. In the long-run, no inputs are fixed for the firm, who decides whether to enter
1
or exit. (how to determine