Demand, Supply, and Market Equilibrium
Demand, Supply, and Market Equilibrium
Demand, Supply, and Market Equilibrium
Market Equilibrium
Higher income
increases the demand
for a normal good
PRICE
(PER
BUSHEL)
$
2
1.75
2.25
3.00
4.00
5.00
QUANTITY
SUPPLIED
(THOUSANDS
OF BUSHELS
PER YEAR)
0
10
20
30
45
45
CLARENCE BROWN'S
SUPPLY SCHEDULE
FOR SOYBEANS
PRICE
(PER
BUSHEL)
$
2
1.75
2.25
3.00
4.00
5.00
QUANTITY
SUPPLIED
(THOUSANDS
OF BUSHELS
PER YEAR)
0
10
20
30
45
45
10
20
30
40
50
6
5
4
3
2
1
0
0
10
20
30
40
50
Determinants of Supply
The price of the good or service.
The cost of producing the good, which in
turn depends on:
The price of required inputs (labor,
Market Equilibrium
The operation of the market
depends on the interaction
between buyers and sellers.
An equilibrium is the condition
that exists when quantity supplied
and quantity demanded are equal.
At equilibrium, there is no tendency
for the market price to change.
Market Equilibrium
Only in equilibrium is
quantity supplied
equal to quantity
demanded.
At any price level
other than P0, the
wishes of buyers
and sellers do not
coincide.
2002 Prentice Hall Business Publishing
Market Disequilibria
Excess demand, or
shortage, is the condition
that exists when quantity
demanded exceeds
quantity supplied at the
current price.
When quantity demanded
exceeds quantity
supplied, price tends to
rise until equilibrium is
restored.
2002 Prentice Hall Business Publishing
Market Disequilibria
Excess supply, or
surplus, is the condition
that exists when quantity
supplied exceeds quantity
demanded at the current
price.
When quantity supplied
exceeds quantity
demanded, price tends to
fall until equilibrium is
restored.