I know that equilibrium is a static status in model in which relevant constraints are enough so that it is restrictive to ylied testable implications (From Proffesor N.S.Cheung) while disequilibrium is the opposed.
HOWEVER, STILL I have questions that are important in understand ing it
1. under the condition of disequilibrium (e.g.P>MC in a price raker cost & supply analysis) ,why every conceived outcome is possible
I and I believe, many students still don't understand why disequilibrium (e.g P>MC, Qs>Qd) can't yelid testable implications (i.e. P rises, output rises; P rise,Qd drops) ,COULD ANYONE USING THESE PRATCICAL EXAMPLES TO EXPLAIN TO MES?
2. What is the relationships of equilibrium & testable implication?
3.. Can we try to equalize the 2 desfinitons abt equilibrium that relevant constraints are enough so that it is restrictive to ylied testable implications and there is no tendency yo change (traditional analysis)? IF WE CAN, HOW CAN WE DO SO?
I BELEIVE AFTER ANSWERING THESE QUESTIONS, MOST OF US CAN UNDERSTAND THE CONCEPT OF EQUILINRIUM MORE CLEARLY . WOULD ANYONE WHO REALLY KNOW THE ANSWERS CAN SHOW YOUE GENEROUS TO HELP ME AS THE PUBLIC EXAM IS REALLING COMING?THANKS WITH MY WHOLE LIFE!
"price raker" <--should be price taker
Again, I am having trouble understanding your questions.
We can see numerous testable events to see if a dis-equilibrium situation is able to resolve itself and make progress towards an equilibuium outcome.
For example if we see Qs>Qd (e.g. an oversupply of office space). Then one testable hypothesis is "do rents fall when Qs>Qd" A second example, if the price of corn goes sky high, do farmers respond and plant more corn?
I hope this helps.
1. Under the condition of disequilibrium, such as when the price (P) is higher than the marginal cost (MC) in a price taker cost and supply analysis, it is possible to have a range of outcomes. This is because in disequilibrium, the market forces are not in balance, leading to potential fluctuations and uncertainties in the market. These fluctuations can result in different outcomes depending on the specific circumstances.
For example, when P>MC in a supply and demand analysis, it implies that producers are receiving a higher price for their goods than what it costs them to produce. In this case, there might be an excess supply (Qs>Qd) because producers are willing to supply more at the higher price. However, the specific outcome can vary depending on factors such as the elasticity of demand and supply.
In some cases, the excess supply might result in a decrease in price until it reaches the equilibrium point, where P=MC. Alternatively, if there is a limited supply of the good or if the demand is highly inelastic, the price might remain high even in the face of excess supply. Hence, the specific outcome in this disequilibrium scenario can depend on various factors and cannot be predicted solely by the condition P>MC.
2. The relationship between equilibrium and testable implications is that equilibrium represents a stable state where all relevant constraints are satisfied and there is no tendency for change. In equilibrium, the market forces are in balance, and the quantity demanded (Qd) equals the quantity supplied (Qs), resulting in no excess demand or supply.
Testable implications, on the other hand, are observable consequences or predictions made based on the theoretical framework or model. These implications can be tested against real-world data or empirical evidence to evaluate the validity of the model.
Equilibrium provides a framework for understanding and making predictions about the behavior of markets. It serves as a reference point against which testable implications can be measured or compared. If the testable implications derived from a model align with the observed data, it suggests that the model is a good representation of the market dynamics and can be used to make reliable predictions.
3. It is possible to reconcile the two definitions of equilibrium: "relevant constraints are enough so that it is restrictive to yield testable implications" and "there is no tendency to change." These definitions actually complement each other in understanding equilibrium.
The first definition emphasizes that relevant constraints, such as supply and demand conditions or market mechanisms, need to be incorporated into the model to yield testable implications. In other words, the model needs to capture the essential factors that determine the behavior of the market. These constraints serve as the foundation for deriving predictions or testable implications.
The second definition highlights that equilibrium represents a state where there is no tendency for change. This means that in equilibrium, the market is in a stable condition where the forces of supply and demand are balanced, and there is no pressure for price or quantity to change. In this state, the market is self-regulating, and there is no inherent tendency for the equilibrium to shift unless there are external factors or shocks.
To reconcile these definitions, one needs to develop a model that incorporates relevant constraints and accurately represents the market dynamics. This involves considering factors such as supply and demand relationships, pricing mechanisms, consumer behavior, and production costs. By building a reliable model that satisfies these constraints, we can derive testable implications that can be compared to real-world data to assess the model's validity.
Remember, understanding equilibrium requires both theoretical understanding and empirical validation, as it involves analyzing the interactions of various economic factors in real-world situations.