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Equilibrium analysisIn the market for any particular good X, the decisions of buyers interact simultaneously (îäíîâðåìåííî) with the decisions of sellers. When the demand for good X equals the supply of good X, the market for good X is said to be in equilibrium. Associated with any market equilibrium will be an equilibrium quantity and an equilibrium price. The equilibrium quantity of good X is that quantity for which the quantity demanded of good X exactly equals the quantity supplied of good X. The equilibrium price for good X is that price per unit of good X that allows the market to “clear”; that is, the price for which the quantity demanded of good X exactly equals the quantity supplied of good X. The determination of equilibrium quantity and price, known as equilibrium analysis, can be achieved in two different ways: by simultaneously solving the algebraic equations for demand and supply or by combining the demand and supply curves in a single graph and determining the equilibrium price and quantity graphically. Microeconomics deals with both positive and normative questions. Normative analysis is that part of economics that expresses value judgments (normative judgments) about economic fairness or what the economy ought to be like or what goals of public policy ought to be. It is common to distinguish normative economics ("what ought to be" in economic matters) from positive economics ("what is"). But many normative (value) judgments are held conditionally, to be given up if facts or knowledge of facts changes, so that a change of values may be purely scientific. An example of a normative economic statement is as follows: Positive analysis is the branch of economics that concerns the description and explanation of economic phenomena.[1] It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economics theories; positive questions have to do with explanation and prediction. The price of milk has risen from $3 a gallon to $5 a gallon in the past five years.This is a positive statement because it can be proven true or false by comparison against real-world data. In this case, the statement focuses on facts. 7. Demand Function(DF): Individual DF vs Market DF A demand function represents the behavior of buyers. In most cases the demand relationship is based on an inverse or negative relationship between the price and quantity of a good purchased. BUT: The demand for purely competitive firm's output is usually depicted as horizontal (or perfectly elastic). In rare cases, under extreme conditions, a "Giffen good" may result in a positively sloped demand function. These Giffen goods rarely occur. The behavior of a buyer is influenced by many factors: the price of the good, the prices of related goods (compliments and substitutes), incomes of the buyer, the tastes and preferences of the buyer, the period of time and a variety of other possible variables.
QX = f(PX, P related goods, income (M), preferences, . . . ) QX=the quantity of good X, PX=price of good X,Prelated goods=prices of compliments or substitutes Expectations about the future prices can cause the demand to shift. If buyers expect relative prices of a good will rise in future periods, the demand may increase in the present period. To represent the demand relationship graphically, the effects of a change in PX on the QX are shown. The other variables, (Prelated goods, M, preferences, . . . ) are held constant. Demand can also be perceived as the maximum prices buyers are willing and able to pay for each unit of output, ceteris paribus. PX = f(QX), given incomes, price of related goods, preferences, etc. For the market the demand function can be represented by adding the number of buyers (NB, or population), QX = f (PX, Prelated goods, income (M), preferences, . . . NB) Where NB represents the number of buyers. Using ceteris paribus the market demand may be stated QX = f(PX), given incomes, price of related goods, preferences, NB etc. Date: 2016-03-03; view: 865
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An individual's demand function for a good (Good X) might be written: