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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 ...
The expected utility for the buyer will always increase - for a monotonic, positive utility function - as the probability of encountering a peach increases. = (¯) (¯) > Furthermore, the equation for a buyer's expected utility implies that the equilibrium price in an informationally symmetric market is: = (¯) + (¯) However, the used car ...
This implies that the price one cent above MC is now an equilibrium: if the other firm sets the price one cent above MC, the other firm can undercut it and capture the whole market, but this will earn it no profit. It will prefer to share the market 50/50 with the other firm and earn strictly positive profits. [6] Product differentiation. If ...
This lack of equilibrium arises from the firms competing in a market with substitute goods, where consumers favor the cheaper product due to identical preferences. Additionally, equilibrium is not achieved when firms set different prices; the higher-priced firm earns nothing, prompting it to lower prices to undercut the competitor.
From consumer equilibrium for an individual, the book aggregates to market equilibrium across all individuals, producers, and goods. In so doing, Hicks introduced Walrasian general equilibrium theory to an English-speaking audience. This was the first publication to attempt a rigorous statement of stability conditions for
It follows that the market value of total excess demand in the economy must be zero, which is the statement of Walras's law. Walras's law implies that if there are n markets and n – 1 of these are in equilibrium, then the last market must also be in equilibrium, a property which is essential in the proof of the existence of equilibrium.
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 .