Two Approaches to Market Equilibriu1

Two Approaches to Market Equilibriu1 - Two Approaches to...

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Two Approaches to Market Equilibrium The Graphical Approach By now, we are familiar with graphs of supply curves and demand curves. To find market equilibrium, we combine the two curves onto one graph. The point of intersection of supply and demand marks the point of equilibrium. Unless interfered with, the market will settle at this price and quantity. Why is this? At this point of intersection, buyers and sellers agree on both price and quantity. For instance, in the graph below, we see that at the equilibrium price p*, buyers want to buy exactly the same amount that sellers want to sell. Figure %: Market Equilibrium If the price were higher, however, we can see that sellers would want to sell more than buyers would want to buy. Likewise, if the price were lower, quantity demanded would be greater than quantity supplied. The following graph shows the discrepancy in supply and demand if the price is higher than the equilibrium price: Figure %: Price Higher than Equilibrium Price
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This note was uploaded on 02/09/2012 for the course ECO ECO2013 taught by Professor Jominy during the Fall '08 term at Broward College.

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Two Approaches to Market Equilibriu1 - Two Approaches to...

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