The study of markets is a powerful, informative, and useful method for understanding the world around us, and interpreting economic events. The use of supply and demand allows us to understand how the...The study of markets is a powerful, informative, and useful method for understanding the world around us, and interpreting economic events. The use of supply and demand allows us to understand how the world works, how changes in economic conditions affect prices and production, and how government policies and programs affect prices, producers, and consumers. A huge number of diverse and interesting issues can be usefully analyzed using supply and demand.
In the case of supply and demand, we want to make statements about the changes in equilibrium price and quantity. \(P_e\) and \(Q_e\) are the endogenous variables in the equilibrium model and we track...In the case of supply and demand, we want to make statements about the changes in equilibrium price and quantity. \(P_e\) and \(Q_e\) are the endogenous variables in the equilibrium model and we track how they respond to shocks. The price is the variable that drives a market to equilibrium, but it is \(Q_e\) that represents how much of society’s scarce resources are to be allocated to the production of each commodity, according to the market system.
