Producers cannot force consumers to buy more than

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Unformatted text preview: rs a week. In this situation, powerful forces operate to lower the price and move it toward the equilibrium price. Some producers, unable to sell the quantities of energy bars they planned to sell, cut their prices. In addition, some producers scale back production. As producers cut the price, the price falls toward its equilibrium. The falling price decreases the surplus because it increases the quantity demanded and decreases the quantity supplied. When the price has fallen to the point at which there is no longer a surplus, the forces moving the price stop operating and the price comes to rest at its equilibrium. 65 The Best Deal Available for Buyers and Sellers When the price is below equilibrium, it is forced upward. Why don’t buyers resist the increase and refuse to buy at the higher price? Because they value the good more highly than the current price and they can’t satisfy their demand at the current price. In some markets—for example, the markets that operate on eBay—the buyers might even be the ones who force the price up by offering to pay a higher price. When the price is above equilibrium, it is bid downward. Why don’t sellers resist this decrease and refuse to sell at the lower price? Because their minimum supply price is below the current price and they cannot sell all they would like to at the current price. Normally, it is the sellers who force the price down by offering lower prices to gain market share. At the price at which the quantity demanded and the quantity supplied are equal, neither buyers nor sellers can do business at a better price. Buyers pay the highest price they are willing to pay for the last unit bought, and sellers receive the lowest price at which they are willing to supply the last unit sold. When people freely make offers to buy and sell and when demanders try to buy at the lowest possible price and suppliers try to sell at the highest possible price, the price at which trade takes place is the equilibrium price—the price at which the quantity demanded equals the quantity supplied. The price coordinates the plans of buyers and sellers, and no one has an incentive to change it. Revi...
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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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