Principles of Economics- Mankiw (5th) 77

Principles of Economics- Mankiw (5th) 77 - CHAPTER 4 T H E...

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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 81 equilibrium price, the quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell. The equilibrium price is sometimes called the market-clearing price because, at this price, everyone in the market has been satisfied: Buyers have bought all they want to buy, and sellers have sold all they want to sell. The actions of buyers and sellers naturally move markets toward the equilib- rium of supply and demand. To see why, consider what happens when the market price is not equal to the equilibrium price. Suppose first that the market price is above the equilibrium price, as in panel (a) of Figure 4-9. At a price of $2.50 per cone, the quantity of the good supplied (10 cones) exceeds the quantity demanded (4 cones). There is a surplus of the good: Suppliers are unable to sell all they want at the going price. When there is a surplus in the ice-cream market, for instance, sellers of ice cream find their freez-
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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