If we can estimate the supply and demand curves for a particular market, how do we use that information to predict market behavior?
Your Answer:
With an estimate of supply
and demand, it is possible to predict the behavior of price and quantity in a
market. Supply and demand estimates are used to calculate the market-clearing
price and the corresponding equilibrium quantity, where quantity demanded
equals quantity supplied. We can also use supply and demand estimates to
predict the direction of price and quantity in the market as variables other
than price change. Predicting market behavior, therefore, means examining the
impact of changes in economic variables, such as income and the prices of other
goods, on equilibrium price and quantity.
Source: Pindyck /
Rubinfeld, Microeconomics, 7th edition, Pearson
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