blanchard_ch03

# The price coordinates the plans of buyers and sellers

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Unformatted text preview: ew Quiz ◆ 1 2 3 4 5 6 7 What is the equilibrium price of a good or service? Over what range of prices does a shortage arise? Over what range of prices does a surplus arise? What happens to the price when there is a shortage? What happens to the price when there is a surplus? Why is the price at which the quantity demanded equals the quantity supplied the equilibrium price? Why is the equilibrium price the best deal available for both buyers and sellers? Work Study Plan 3.4 and get instant feedback. 9160335_CH03_p053-080.qxd 66 6/22/09 8:56 AM Page 66 CHAPTER 3 Demand and Supply ◆ Predicting Changes in Price FIGURE 3.8 The demand and supply model that we have just studied provides us with a powerful way of analyzing influences on prices and the quantities bought and sold. According to the model, a change in price stems from a change in demand, a change in supply, or a change in both demand and supply. Let’s look first at the effects of a change in demand. Price (dollars per bar) and Quantity The Effects of a Change in Demand 3.00 Supply of energy bars 2.50 2.00 1.50 An Increase in Demand When more and more people join health clubs, the demand for energy bars increases. The table in Fig. 3.8 shows the original and new demand schedules for energy bars (the same as those in Fig. 3.2) as well as the supply schedule of energy bars. When demand increases, there is a shortage at the original equilibrium price of \$1.50 a bar. To eliminate the shortage, the price must rise. The price that makes the quantity demanded and quantity supplied equal again is \$2.50 a bar. At this price, 15 million bars are bought and sold each week. When demand increases, both the price and the quantity increase. Figure 3.8 shows these changes. The figure shows the original demand for and supply of energy bars. The original equilibrium price is \$1.50 an energy bar, and the quantity is 10 million energy bars a week. When demand increases, the demand curve shifts rightward. The equilibrium price rises to \$2.50 an energy bar, and...
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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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