Economics Pear
3
3.1
Market equilibriuM and efficiency
Equilibrium
Learning outcomes • Explain, using diagrams, how demand and supply interact to produce market equilibrium. • Analyse, using diagrams and with reference to excess demand or excess supply, how changes in the determinants of demand and/or supply result in a new market equilibrium.
Money is a medium of exchange – you can exchange it for something you want that somebody else has.
Having examined demand and supply separately, we can combine them to analyse markets more completely. When demand and supply are combined, there is a tendency for the market to reach an equilibrium state. Equilibrium is defined as the state in which all contrasting forces cancel each other out, resulting in balance or stability. Market equilibrium is defined as the state in which the quantity supplied is equal to the quantity demanded. Supply and demand are balanced. The price at which the quantity supplied and demanded are equal is called the equilibrium price. At this price, the amount purchased is exactly equal to the amount sold. There is no surplus product available on the market, nor are there shortages of supply at that price. For this reason, the equilibrium price is also called the market-clearing price. Everything put on the market, at that price, is sold. Returning to the bags of potato chips we used in Chapter 2, the total market schedule shows the equilibrium price is $1.50 per bag (Table 3.1). At that price, the amount supplied and
Market equilibrium occurs at the price where the quantity demanded and quantity supplied are equal (also called the market-clearing price).
To learn more about supply and demand, visit pearsonhotlinks.com, enter the title or ISBN of this book and select weblink 3.1.
53
3
market equilibrium and efficiency
demanded is 15 000 bags per week. All the chips offered on the market are purchased by consumers. Prices set above or below the market price will result in
3.1
Market equilibriuM and efficiency
Equilibrium
Learning outcomes • Explain, using diagrams, how demand and supply interact to produce market equilibrium. • Analyse, using diagrams and with reference to excess demand or excess supply, how changes in the determinants of demand and/or supply result in a new market equilibrium.
Money is a medium of exchange – you can exchange it for something you want that somebody else has.
Having examined demand and supply separately, we can combine them to analyse markets more completely. When demand and supply are combined, there is a tendency for the market to reach an equilibrium state. Equilibrium is defined as the state in which all contrasting forces cancel each other out, resulting in balance or stability. Market equilibrium is defined as the state in which the quantity supplied is equal to the quantity demanded. Supply and demand are balanced. The price at which the quantity supplied and demanded are equal is called the equilibrium price. At this price, the amount purchased is exactly equal to the amount sold. There is no surplus product available on the market, nor are there shortages of supply at that price. For this reason, the equilibrium price is also called the market-clearing price. Everything put on the market, at that price, is sold. Returning to the bags of potato chips we used in Chapter 2, the total market schedule shows the equilibrium price is $1.50 per bag (Table 3.1). At that price, the amount supplied and
Market equilibrium occurs at the price where the quantity demanded and quantity supplied are equal (also called the market-clearing price).
To learn more about supply and demand, visit pearsonhotlinks.com, enter the title or ISBN of this book and select weblink 3.1.
53
3
market equilibrium and efficiency
demanded is 15 000 bags per week. All the chips offered on the market are purchased by consumers. Prices set above or below the market price will result in