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Chapter 4

Econ 1BB3 - Chapter 4 Equilibrium.docx

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Bridget O' Shaughnessy

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Richard Damra Monday, January 21, 2013 Econ 1BB3 – Chapter 4 Equilibrium Equilibrium  Equilibrium price: the price for which Qs = Qd  Equilibrium quantity: the quantity that corresponds to equilibrium price   Comparative Statics: We start at equilibrium, something will change one of the curves will shift and we end up with new eq. so we compare old equilibrium with new equilibrium.  If Qs > Qd there is a surplus  Stocks build up and firms decrease price until equilibrium is restored (include graph of surplus)  Three step program for analyzing changes in equilibrium  1. Decide whether the event shifts the supply or demand curve (or perhaps both). It is very rare that there is an event that shifts both curve. o Ask yourself: If I am a buyer does this shock affect how much I want to buy? If yes it is demand t
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