Equilibrium With Supply And Demand Curves

We often show the market equilibrium through a supply-and-demand diagram like the one in Figure 7; this figure combines the supply curve from Figure 5 with the demand curve from Figure  2. Combining the two graphs is possible because they are drawn with exactly the same units on each axis.

We find the market equilibrium by looking for the price at which quantity demanded equals quantity supplied. 1 Equilibrium. price comes at the intentional of the’supply and demand curves, at point C.

How do we know that the intersection of the supply and demand curves is’ the market equilibrium? Let us repeat our earlier experiment, Start with the initial high price of $5 per box, shown ~t the top of the.price axis in Figure 7. At that price, suppliers line labeled “Surplus.” The arrows along the c show the direction that price tends to move when market is’ in surplus:

The market equilibrium price and quantity come at the intersection of the supply and demand curves. At a price of $3, at point C, finds willingly supply what consumers willingly demand. When the price is too low (say, at $2), quantity demanded exceeds quantity supplied. shortages occur,and the price is driven up to equilibrium. What occurs at a price of $4?

At a low price of $2 per box, the market shows slagging, or excess of quantity demanded over quantity supplied, here shown by the black line label “Shortage.” Under conditions of shortage, the co petition among buyers for limited goods causes price to rise, as shown in the figure by the pointing upward.

We now see that the· balance or equilibrium supply and demand comes at point {;, where the ply and demand curves intersect, At point C where the price is $3 per box and the quantity is 12 uni the quantities demanded and supplied are eq there are no shortages or surpluses; there is no deny for price to rise or fall. At point C and only point {;, the forces of supply and demand are in acne and the price has settled at a sustainable Level.

The equilibrium price and quantity come where the amount willingly supplied equals the amount willingly demanded, In a competitive market; this equilibrium is found at the intersection of the supply demand curves. There are no shortages or surplus at the equilibrium price.

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