Equilibrium

Equilibrium - Equilibrium Given the supply and demand...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Equilibrium Given the supply and demand curves in their aggregate form, an equilibrium level can be established at the point of their intersection . In figure 16, AD and SAS are such short run curves. The two have intersected at point E which is the equilibrium; the price that is commonly offered and received is P and quantity exchanged is Y (P and Y bar ). This is only an initial equilibrium and it can alter with a shift in either the demand or supply curves. In figure 17 such a shift upwards in the aggregate demand curve has been shown. This causes equilibrium position to shift as well from E to E 1 . In the new equilibrium position price level
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
rises from P to P 1 and real output quantity exchanged increases from Y to Y 1 . Such an increase in the real output becomes possible because between E and E 1 we were still operating along the short run supply phase, where some resources were underutilized. But once the point E1 is reached the supply curve becomes steep and vertical. Here the full
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

Page1 / 3

Equilibrium - Equilibrium Given the supply and demand...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online