On the other hand suppose at another game 2500 people

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Unformatted text preview: he stands. On the other hand, suppose at another game 2,500 people want to be at the game but the stadium still has only 2,000 seats. Here we see a shortage of seats. Maybe some people will have to stand, or some people will not be admitted to the game. EXAMPLE: EXAMPLE: Back when the Soviet Union existed (pre-1989), you could walk around Moscow and find very few people in some shops, but long lines of people inside and outside of other shops. At the time, Soviet officials set the prices of the goods and services sold in the country. Often, the prices they set were not equilibrium prices— prices at which quantity demanded equaled quantity supplied. Where the Soviet officials set the price of a good higher than equilibrium price (say, 100 rubles is the equilibrium price and officials set the price at 250 rubles), there was a surplus of that good. This surplus was evidenced by less of the good being purchased than was available for sale, and there- 132 Chapter 6 Price: Supply and Demand Together 50 100 150 Quantity fore, stores with few customers. Where the Soviet officials set the price of a good lower than equilibrium price (say, 100 rubles is the equilibrium price and officials set the price at 30 rubles), there was a shortage of that good. You could “see” a shortage in the form of a long line of people waiting to buy a good that was likely to be “sold out” before they reached the front of the line. What Causes Equilibrium Prices to Change? You now know that equilibrium price is determined by both supply and demand. Can you guess what could cause an equilibrium price to change? You probably guessed right—for the equilibrium price to change, either supply or demand would have to change. Before looking at changes to equilibrium prices, let’s review your ability to read graphs showing supply and demand curves. Practice reading these graphs will help you use graphs to determine shortages, surpluses, and ultimately, equilibrium prices. Look at Exhibit 6-2....
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This document was uploaded on 01/16/2014.

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