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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.
- Winter '14