Posts Tagged ‘Kilograms’

Summary

Tuesday, August 17th, 2010


We have now examined both demand and supply under competitive conditions (in this chapter); these concepts are summarized in Figure 7-11. We are now ready to consider how demand and supply interact, by putting them together, as in Figure 7-12.

Figure 7-11 Supply and demand schedules for steak in Cantown, March 1982

Demand

The Relationship between the price of the product and the number of units buyers will offer to buy

Price of steak per kilogram                                                              Quantity demanded (kilograms)

$10                                                                                                            20,000

8                                                                                                             30,000

6                                                                                                             50,000

4                                                                                                             80,000

2                                                                                                           120,000

Supply

The Relationship between the price of the product and the number of units producers will offer to sell

Price of steak per kilogram                                                             Quantity supplied (kilograms)

$10                                                                                                        100,000

8                                                                                                            80,000

6                                                                                                            50,000

4                                                                                                            20,000

2                                                                                                                  0

As the supply and demand schedules in Figure 7-12 show, the price of steak will tend to settle at $6 per kilogram. This is called the equilibrium price. It is not possible for the price to stabilize at any other level, because all other prices lead to either a shortage or a surplus.

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The Nature of Supply

Wednesday, July 21st, 2010


For this price will be bid up toward the equilibrium level of $6. Only at a price of $6 per kilogram are the actions of both buyers and sellers in harmony, so that there is neither a surplus nor a shortage. As a result, the price will stabilize at the equilibrium level of $6 per kilogram.

The interaction of supply and demand can also be shown on a graph, as in Figure 7-13. On the graph, the equilibrium price of $6 is determined by the intersection of the supply curve and the demand curve at the equilibrium point (E). Similarly, the intersection of the curves determines the quantity that will be bought (and sold), or the “equilibrium quantity” of 50,000 kilograms.

In summary, the way in which supply and demand interact to determine the price of a product or service can be represented on a schedule such as Figure 7-12, or on a graph such as Figure 7-13. Both the schedule and the graph depict the behavior of buyers (demand) and sellers (supply) in the market for a particular good or service, and the equilibrium price and quantity that will emerge in that market.

Figure 7-13 is a very static representation of a market, showing the demand for and supply of steak at a particular time (March 1982). In reality, however, markets are not static as Figure 7—13 seems to suggest, but are dynamic, with constant changes in supply and demand occurring, causing continual changes in equilibrium prices and quantities. In effect, then, Figure 7—13 is a snapshot of a dynamic, changing situation at a particular point in time. In the next chapter, we will consider how markets change and adjust in response to changes in both supply and demand.

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