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Chapter9MarketEquilibriumTopicstobeDiscussedMarketequilibriumQuantitytaxandequilibriumTaxincidenceDeadweightlossMarketEquilibriumAmarketisinequilibriumwhentotalquantitydemandedbybuyersequalstotalquantitysuppliedbysellers.Alsocalled“marketiscleared”MarketEquilibriumpD(p),S(p)q=D(p)MarketdemandMarketsupplyq=S(p)MarketEquilibriumpD(p),S(p)q=D(p)MarketdemandMarketsupplyq=S(p)p*q*D(p*)=S(p*);themarketisinequilibrium.MarketEquilibriumpD(p),S(p)q=D(p)MarketdemandMarketsupplyq=S(p)p*S(p’)D(p’)S(p”);anexcessofquantitydemandedoverquantitysupplied.p”S(p”)MarketEquilibriumpD(p),S(p)q=D(p)MarketdemandMarketsupplyq=S(p)p*D(p”)D(p”)>S(p”);anexcessofquantitydemandedoverquantitysupplied.p”S(p”)Marketpricemustrisetowardsp*.MarketEquilibriumWecancalculatethemarketequilibriumpriceandquantityusingD(p)=S(p)Canwecalculatethemarketequilibriumusingtheinversemarketdemandandsupplycurves?Yes,itisthesamecalculationPd(q)=Ps(q).MarketEquilibriumqDpabppaqbDq()(),1qSpcdppcqdSq()(),1theequationoftheinversemarketdemandcurve.Andtheequationoftheinversemarketsupplycurve.MarketEquilibriumqD-1(q),S-1(q)D-1(q)=(a-q)/bMarketinversedemandS-1(q)=(-c+q)/dp*q*Atequilibrium,D-1(q*)=S-1(q*).MarketinversesupplyMarketEquilibriumTwospecialcases:◦quantitysuppliedisfixed,independentofthemarketprice,and◦quantitysuppliedisextremelysensitivetothemarketprice.MarketEquilibriumS(p)=c+dp,sod=0andS(p)c.pqq*=cMarketquantitysuppliedisfixed,independentofprice.MarketEquilibriumS(p)=c+dp,sod=0andS(p)c.pqp*D-1(q)=(a-q)/bMarketdemandq*=cMarketquantitysuppliedisfixed,independentofprice.MarketEquilibriumS(p)=c+dp,sod=0andS(p)c.pqp*=(a-c)/bD-1(q)=(a-q)...