The higher prices will motivate suppliers to start

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Unformatted text preview: n other buyers. The higher prices will motivate suppliers to start producing more output. Thus, in a shortage, the tendency is for price and output to rise until equilibrium is achieved (see Exhibit 6-2 on the next page). shortage The condition in which the quantity demanded of a good is greater than the quantity supplied. Shortages occur only at prices below equilibrium price. equilibrium In a market the point at which the quantity of a good that buyers are willing and able to buy is equal to the quantity that sellers are willing and able to produce and offer for sale (quantity demanded equals quantity supplied). equilibrium quantity The quantity of a good that is bought and sold in a market that is in equilibrium. equilibrium price The price at which a good is bought and sold in a market that is in equilibrium. inventory The stock of goods that a business or store has on hand. Section 1 Supply and Demand Together 131 06 (128-153) EMC Chap 06 If a surplus occurs, price and quantity of output fall. If a shortage happens, price and quantity of output rise. A price of $10 means neither a surplus nor a shortage, so neither price nor quantity of output changes. 11/21/05 EXH I BIT 3:13 PM Page 132 6 -2 At $15, a surplus occurs. Quantity supplied (150) is greater than quantity demanded (50). Price falls. S A price of $10 results in neither a surplus nor a shortage. Quantity supplied (100) is equal to quantity demanded (100). Equilibrium occurs. D At $5, a shortage happens. Quantity demanded (150) is greater than quantity supplied (50). Price rises. We know what a shortage and a surplus look like on a graph, but what do they look like in the real world? Suppose it’s Friday night and your school’s football team is playing at home. Your school stadium seats 2,000 people but only 500 people are in the stands (350 from your school and 150 from your opponents’ school), resulting in a surplus of seats. In other words, the people who wanted to be at the game was a smaller number than seats available in t...
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This document was uploaded on 01/16/2014.

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