Prices in Static Market Equilibrium

In this setting we test the agent's ability to reason about how prices emerge in a non-strategic setting as a process of equating supply and demand, which in turn relies on their ability to aggregate those market demand functions from consumer and producer behavior.

More specifically, the core logic of general equilibrium is to find the equilibrium price by taking the aggregated demand and supply functions for each market and find the prices which would equate demand and supply. For example, the supply and demand functions for the good, as a function of the price, in Consumer Goods Market Aggregation; or the supply and demand functions for factors of production, as a function of factor prices in Factor Market Aggregation. This is done market by market, taking all other prices as given—which requires the agent reason through comparative statics of the solution to a system of equations while keeping everything else fixed.

Elements

1. Find Equilibrium Price

   Solving for the competitive equilibrium price or quantity where linear or quadratic demand meets supply.

2. Factor Shares in Equilibrium

   Computing labor's or capital's share of total factor payments when each input is paid the value of its marginal product.