This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
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 youve 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 Isnt Equilibrium isnt a state of the world, it is a characteristic of a model. Equilibrium isnt inherently good or bad, it is simply a state in which dynamic pressures offset each other. 2 What Equilibrium Isnt When the market is not in equilibrium, you get either excess supply or excess demand, and a tendency for price to change....
View Full Document
- Spring '10
- Supply And Demand