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In most simple microeconomic stories of supply and demand a static equilibrium is observed in a market; however, economic equilibrium can be also dynamic. Equilibrium may also be economy-wide or general, as opposed to the partial equilibrium of a single market. Equilibrium can change if there is a change in demand or supply conditions.
Partial equilibrium, as the name suggests, takes into consideration only a part of the market to attain equilibrium. Jain proposes (attributed to George Stigler ): "A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed ...
Of course, this theorem is considered irrelevant by economists who do not believe that general equilibrium theory correctly predicts the functioning of market economies; but it is given great importance by neoclassical economists and it is the theoretical reason given by them for combating monopolies and for antitrust legislation.
The market clears when the price reaches a point where demand and supply are in equilibrium, enabling individuals to buy or sell whatever they desire at that cost. When supply and demand are equal, a market clearing takes place. The market must experience a shortage or a surplus to reach this state. A shortage indicates that buyers are ...
Used cars market: due to presence of fundamental asymmetrical information between seller and buyer the market equilibrium is not efficient—in the language of economists it is a market failure. Around the 1970s the study of market failures came into focus with the study of information asymmetry. In particular, three authors emerged from this ...
Therefore, the sole equilibrium in the Bertrand model emerges when both firms establish a price equal to unit cost, known as the competitive price. [9] It is to highlight that the Bertrand equilibrium is a weak Nash-equilibrium. The firms lose nothing by deviating from the competitive price: it is an equilibrium simply because each firm can ...
The concept of an excess demand function is important in general equilibrium theories, because it acts as a signal for the market to adjust prices. [13] If the value of the excess demand function is positive, then more units of a commodity are being demanded than can be supplied; there is a shortage .
The graph depicts an increase (that is, right-shift) in demand from D 1 to D 2 along with the consequent increase in price and quantity required to reach a new equilibrium point on the supply curve (S). A common and specific example is the supply-and-demand graph shown at right.