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The equilibrium price is at the intersection of the supply and demand curves. A poor harvest in period 1 means supply falls to Q 1 , so that prices rise to P 1 . If producers plan their period 2 production under the expectation that this high price will continue, then the period 2 supply will be higher, at Q 2 .
Experimental finance studies financial markets with the goals of establishing different market settings and environments to observe experimentally and analyze agents' behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanism and returns processes. Presently, researchers use ...
This will tend to put downward pressure on the price to make it return to equilibrium. Likewise where the price is below the equilibrium point (also known as the "sweet spot" [3]) there is a shortage in supply leading to an increase in prices back to equilibrium. Not all equilibria are "stable" in the sense of equilibrium property P3.
Calculating option prices, and their "Greeks", i.e. sensitivities, combines: (i) a model of the underlying price behavior, or "process" - i.e. the asset pricing model selected, with its parameters having been calibrated to observed prices; and (ii) a mathematical method which returns the premium (or sensitivity) as the expected value of option ...
General equilibrium theory contrasts with the theory of partial equilibrium, which analyzes a specific part of an economy while its other factors are held constant. [1] General equilibrium theory both studies economies using the model of equilibrium pricing and seeks to determine in which circumstances the assumptions of general equilibrium ...
Walras's law is a consequence of finite budgets. If a consumer spends more on good A then they must spend and therefore demand less of good B, reducing B's price. The sum of the values of excess demands across all markets must equal zero, whether or not the economy is in a general equilibrium.
Competitive equilibrium (also called: Walrasian equilibrium) is a concept of economic equilibrium, introduced by Kenneth Arrow and Gérard Debreu in 1951, [1] appropriate for the analysis of commodity markets with flexible prices and many traders, and serving as the benchmark of efficiency in economic analysis.
An economic model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework designed to illustrate complex processes.