An aggregate demand curve is simply a schedule that shows amounts of a product that buyers collectively desire to purchase at each possible price level.
An aggregate supply curve is simply a curve showing the amounts of a product that all firms will produce at each price level.
Refer to the graph below. What is the market quantity that would be supplied at a price of $2.00?
Market quantity is the sum of individual quantities supplied at each price. At a price of $2.00, Ann supplies 4, Barry supplies 3, and Charlie supplies 0. The market supply is 7.
Equilibrium is a state in which conflicting forces are in balance. In equilibrium, it will be possible for both buyers and sellers to realize their goals simultaneously.
The following graph depicts the market supply and demand for concert tickets at Madison Square Garden in New York City.
Equilibrium price and quantity are where the supply and demand curves intersect. Draw a horizontal line from the intersection to the price axis. This is equilibrium price: $60. Draw a vertical line from the intersection to the quantity axis. This is equilibrium quantity: 300. It is equilibrium because quantity demanded equals quantity supplied at $60 per ticket. At this price, there is neither surplus (excess supply) nor shortage (excess demand), so there is no downward or upward pressure for the price to change.
Surplus will push prices downward towards equilibrium.
Similarly, shortages push prices upward towards equilibrium.
Because the price rises if it is below equilibrium, falls if it is above equilibrium, and remains constant if it is at equilibrium, the price is pulled toward equilibrium and remains there until some event changes the equilibrium. We refer to such an equilibrium as being stable because whenever price is disturbed away from the equilibrium, it tends to converge back to that equilibrium.
An unstable equilibrium is an equilibrium that is not restored if disrupted by an external force. While most equilibria studied in economics are of the stable variety, a few cases of unstable equilibria do emerge from time to time, in limited circumstances.
A. when quantity supplied equals quantity demanded, prices don't change.
When quantity supplied equals quantity demanded, prices don't change. When prices are not changing, the market is said to be in equilibrium.
A. the quantity demanded and supplied will rise.
This is an application of the law of demand and the law of supply.
A. Price rises and quantity also rises.
The saving of the U.S. baby boomers increases the demand for financial assets, increasing the equilibrium price and quantity.
A. Supply has shifted to the right. Price has fallen somewhat, but not enough to equilibrate supply and demand.
The renewed interest in cigars shifted the demand for cigars to the right. Since a shortage of cigars still exists, price has not risen enough to equilibrate supply and demand. There is no evidence of declining supply.
I. there is no government intervention in the market.
In equilibrium, quantity demanded equals quantity supplied. This occurs where the supply and demand curves intersect.
A. equilibrium price must rise, but equilibrium quantity may either rise, fall, or remain unchanged.
A. demand has increased.
An increase in price could mean either that supply has decreased or that demand has increased, but without information on whether the equilibrium quantity has risen or fallen, it is impossible to tell which has occurred.
A. be flatter than the individual demand curves that make it up.
An individual firm's demand curve is always horizontal in a competitive market.
A. the opportunity cost of producing a good equals the market price of the good.
In order for long-run equilibrium to hold, the amount supplied and the amount demanded in the market must be equal; additionally, the opportunity cost of producing the product must equal the market price.
A. $8 to $7.50
To solve for equilibrium price, set Qd equal to Qs. The initial equilibrium price is $8. The equation for the new supply curve is Qs = 4P -20 and the new equilibrium price is 8.5.
A. The quantity demanded will decrease.
An inward shift of the supply curve for a good implies that equilibrium will occur at a higher price and lower output. This is because the demand curve (which remains constant) and the supply curve now intersect at a higher price and lower output.
A. the vertical summation of individual demand curves
Market demand is the sum of individual demands. Graphically, it is the horizontal summation of individual demand curves because individual quantities demanded are summed at each possible price.