The total that the buyers enter is 20000 bushels 130

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Unformatted text preview: want to buy at that price. The total that the buyers enter is 20,000 bushels, 130 Chapter 6 Price: Supply and Demand Together • • which is the quantity demanded of corn at $6 per bushel (see Exhibit 6-1). The quantity supplied, though, is 40,000. In economics, when quantity supplied is greater than quantity demanded, a surplus exists. At a price of $6 per bushel, the surplus equals 20,000 bushels (the difference between the quantity supplied and the quantity demanded). So, what do you think will happen next? The auctioneer, realizing that 20,000 bushels of corn will go unsold at $6, decides to lower the price per bushel to $5. At $5 a bushel, the buyers again key in the number of bushels they will buy, and the total increases to 30,000 bushels. This amount still leaves a surplus of corn—specifically, 10,000 bushels. So, what will the auctioneer do? Again, he lowers the price, this time to $2. At only $2 a bushel, the buyers want to buy a lot more corn, and the total quantity demanded jumps to 60,000 bushels. At first it sounds like a good thing, but do you see why it is a problem? (Look again at Exhibit 6-1.) Quantity • • 11/21/05 3:13 PM Page 131 demanded is now greater than quantity supplied, a condition that economists call a shortage. The auctioneer, realizing that he can’t sell 60,000 bushels of corn when he only has 40,000, decides to raise the price to $3. As we would expect, when the price goes up, from $2 to $3 a bushel, the buyers want less corn. The quantity demanded falls to 50,000 bushels, but still there is a shortage. So the auctioneer again raises the price, this time to $4. At $4 a bushel, the buyers key in a total of 40,000 bushels, exactly the same amount as the auctioneer has to sell. Quantity demanded equals quantity supplied. The auction stops. At this point, but not until this point, economists would say that the corn market is in equilibrium. A market is said to be in equilibrium when the quantity demanded of a good equals the quantity supplied. In this example, 40,000 bushels is referred to as the equilibrium quantity (the quantity of a good bought and sold i...
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This document was uploaded on 01/16/2014.

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