Algebraic Method for Analyzing a Demand Shock in a Linear Market Model
To determine the impact of a positive demand shock within a linear market model, one can use an algebraic approach. If the initial demand is given by , the new demand curve after the shock is represented by the function , where signifies the positive shock. The original supply curve remains unchanged. The next step is to calculate the new market equilibrium by solving for the price and quantity where the new demand equals supply. The overall effect of the shock is then found by comparing the new equilibrium price and quantity with the original equilibrium values.
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Ch.8 Supply and demand: Markets with many buyers and sellers - The Economy 2.0 Microeconomics @ CORE Econ
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Algebraic Method for Analyzing a Demand Shock in a Linear Market Model
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In a market with a standard upward-sloping supply curve and a downward-sloping demand curve, a positive demand shock that increases the quantity demanded by 20 units at every price will result in the new equilibrium quantity being exactly 20 units greater than the original equilibrium quantity.