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The supply and demand model describes how prices vary as a result of a balance between product availability and demand. 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).
where > 0 is the speed of adjustment parameter and is the time derivative of the price — that is, it denotes how fast and in what direction the price changes. By stability theory , P will converge to its equilibrium value if and only if the derivative d ( d P / d t ) d P {\displaystyle {\frac {d(dP/dt)}{dP}}} is negative.
The original equilibrium price is $3.00 and the equilibrium quantity is 100. The government then levies a tax of $0.50 on the sellers. This leads to a new supply curve which is shifted upward by $0.50 compared to the original supply curve. The new equilibrium price will sit between $3.00 and $3.50 and the equilibrium quantity will decrease.
Intertemporal equilibrium is a notion of economic equilibrium conceived over many periods of time. In modern economic theory , most models explicitly take into account the fact that the economy evolves over time, and that its equilibrium cannot be fruitfully analyzed from a purely static perspective.
A graph showing the impact on some endogenous variable, over time (that is, the multipliers for times t, t+1, t+2, etc.), is called an impulse-response function. [2] The general method for calculating impulse response functions is sometimes called comparative dynamics .
A macroeconomic model is an analytical tool designed to describe the operation of the problems of economy of a country or a region. These models are usually designed to examine the comparative statics and dynamics of aggregate quantities such as the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the level of prices.
the price level drops, which raises real balances, and thus consumption rises, which creates a different set of IS-curves on the IS-LM diagram, intersecting the LM curves above the low interest rate threshold of the liquidity trap. Finally, the economy moves to the new equilibrium, at full employment.
Hotelling's rule defines the net price path as a function of time while maximizing economic rent in the time of fully extracting a non-renewable natural resource.The maximum rent is also known as Hotelling rent or scarcity rent and is the maximum rent that could be obtained while emptying the stock resource.