Market Equilibrium Dynamics
Tâtonnement, welfare, and price ceilings
Linear supply and demand. Run the tâtonnement — excess demand drives the price up, excess supply drives it down, the fixed point is the equilibrium. Impose a ceiling and the purple wedge is the surplus nobody gets.
Demand:
Supply:
Tâtonnement: price rises when demand exceeds supply, falls otherwise. Equilibrium is the fixed point where excess demand is zero.
eq. price P*
7.000
eq. quantity Q*
9.000
consumer surplus
40.500
producer surplus
40.500
Binding ceiling: trade contracts to the lesser of supply and demand at the capped price. The purple wedge between the curves is surplus that nobody captures — deadweight loss.