3-5Equilibrium - 1 Equilibrium Chapter 3-5 The Interaction...

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Unformatted text preview: 1 Equilibrium Chapter 3-5 The Interaction of Supply and Demand • The English historian Thomas Carlyle once said: “Teach any parrot the words supply and demand and you’ve got an economist.” Equilibrium • Equilibrium is a concept in which opposing dynamic forces cancel each other out. Equilibrium • In a free market, the forces of supply and demand interact to determine equilibrium quantity and equilibrium price. Equilibrium • Equilibrium price – the price toward which the invisible hand drives the market. • Equilibrium quantity – the amount bought and sold at the equilibrium price. What Equilibrium Isn’t • Equilibrium isn’t a state of the world, it is a characteristic of a model. • Equilibrium isn’t inherently good or bad, it is simply a state in which dynamic pressures offset each other. 2 What Equilibrium Isn’t • When the market is not in equilibrium, you get either excess supply or excess demand, and a tendency for price to change....
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3-5Equilibrium - 1 Equilibrium Chapter 3-5 The Interaction...

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