ECON1020 Lecture Notes - Lecture 3: Ceteris Paribus, Demand Curve, Comparative Statics
Document Summary
Week 3 - the market: equilibrium and efficiency. At market equilibrium, we assume ceteris paribus, i. e. prices in related markets (substitutes, complements and fops) are constant. Equilibrium: a situation where demand and supply have been brought into balance. In the competitive market, the equilibrium occurs at the price where qd = qs. This price clears the market such that no shortage nor surplus exists. The equilibrium price balances the quantity supplied and the quantity demanded. The equilibrium quantity is the quantity supplied and the quantity demanded at the equilibrium price. The equilibrium price and quantity depend on the position of the supply and demand curves. When some event shifts one of these curves, the equilibrium in the market changes, resulting in a new price and a new quantity exchanged between buyers and sellers. The analysis of such a change is called comparative statics because it involves comparing an old equilibrium and a new equilibrium.
