blanchard_ch03

# If the price is too low the quantity demanded exceeds

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Unformatted text preview: ch the quantity demanded equals the quantity supplied. Let’s work out what that price is. Figure 3.7 shows the market for energy bars. The table shows the demand schedule (from Fig. 3.1) and the supply schedule (from Fig. 3.4). If the price of a bar is 50¢, the quantity demanded is 22 million bars a week but no bars are supplied. There is a shortage of 22 million bars a week. This shortage is shown in the final column of the table. At a price of \$1.00 a bar, there is still a shortage but only of 9 million bars a week. If the price of a bar is \$2.50, the quantity supplied is 15 million bars a week but the quantity demanded is only 5 million. There is a surplus of 10 million bars a week. The one price at which there is neither a shortage nor a surplus is \$1.50 a bar. At that price, the quantity demanded is equal to the quantity supplied: 10 million bars a week. The equilibrium price is \$1.50 a bar, and the equilibrium quantity is 10 million bars a week. Figure 3.7 shows that the demand curve and the supply curve intersect at the equilibrium price of \$1.50 a bar. At each price above \$1.50 a bar, there is a surplus of bars. For example, at \$2.00 a bar, the surplus is 6 Supply of energy bars Price (dollars per bar) Quantity demanded 15 20 25 Quantity (millions of bars per week) Quantity supplied Shortage (–) or surplus (+) (millions of bars per week) 0.50 22 0 –22 1.00 15 6 –9 1.50 10 10 0 2.00 7 13 +6 2.50 5 15 +10 The table lists the quantity demanded and the quantity supplied as well as the shortage or surplus of bars at each price. If the price is \$1.00 a bar, 15 million bars a week are demanded and 6 million are supplied. There is a shortage of 9 million bars a week, and the price rises. If the price is \$2.00 a bar, 7 million bars a week are demanded and 13 million are supplied. There is a surplus of 6 million bars a week, and the price falls. If the price is \$1.50 a bar, 10 million bars a week are demanded and 10 million bars are supplied. There is neither a...
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## This note was uploaded on 04/04/2012 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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