Equilibrium analysis
Chapter 3 – Equilibrium analysis (algebra review)
What is equilibrium? In a specified model, a lack of tendency to change.
This is static equilibrium – study of statics.
Is equilibrium desirable? Depends.
Partial equilibrium – only part of model considered, ie ceteris paribus.
Solving a linear model
Graph:
 |
|
| Economics | “Right” way |
No excess demand or supply implies that
, so
This is the intersection of sets
and 
A non-linear example
The demand function is a quadratic function
Only non-negative P’s and Q’s are considered so the demand curve is a segment of
a parabola.
Graph:
Excess demand = 0, so
The above is a quadratic equation that can be written as
aP2 + bP + c = 0
To solve for P:
The quadratic formula! A good formula to memorize.
Try this one:
Answer: P = 1, Q = 3
Higher degree polynomials
Factoring by trial and error
Find a factor, then use quadratic formula or find another factor:
