In this lesson, we investigate how prices reach equilibrium and how the market works like an invisible hand coordinating economic activity. At equilibrium, the

In this lesson, we investigate how prices reach equilibrium and how the market works like an invisible hand coordinating economic activity. At equilibrium, the price is stable and gains from trade are maximized. When the price is not at equilibrium, a shortage or a surplus occurs. The equilibrium price is the result of competition amongst buyers and sellers.

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Show 1 Answer (Answer provided by Ion Sterpan)
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Equilibrium price means the price at which the quantity supplied will happen to be just equal to quantity demanded. We start reasoning from quantity supplied and quantity demanded (the X axis).
If the quantity supplied is in excess to the equilibrium quantity (and so today's price is higher than the equilibrium), there would be gains for sellers from selling the excess supply at the equilibrium price, because otherwise buyers would not buy the excess supply at all. (And yes, they would not buy it because their cost from buying would be higher than the value of the good baught). There are also gains for buyers from that trade, because at a higher price they would not be willing to buy it at all, and so they would not have any gains.
If the quantity demanded is in excess to the quantity supplied (and so today's price is lower than the equilibrium price), that means demanders are willing to pay up to the equilibrium price to get more products than are available. The trade which will take place at the equilibrium price will bring gains to demanders -- since they asked for it -- as well as to producers, who, according to the supply curve, ar able and willing to produce the equilibrium quantity demanded provided they can sell it at the equilibrium price.
The gains need not be minimal. If there is a lot of excess supply, the gains from trading that supply at the equilibrium price will be high. If there is a lot of excess demand is very large, so will be the gains from the trade which responds to it.

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Sorry. I do not see the mistakes . Please shıow me . Thanks billion

If the price is higher than the equilibrium price, demand has to go down all things being equal.

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Ah that will be the subject of a later video I am sure but that is good you thought of this.

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Depends on growth rate of supply vs demand and which one is more elastic. In cases where growth is equal for supply and demand, if demand is more inelastic than supply, equilibrium price will fall and if demand is more elastic than supply, equilibrium price will rise. If supply and demand are equally elastic/inelastic, equilibrium price does not change. Quantity increases in all cases.

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Adam Smith uses the metaphor "invisible hand" in Book IV, Chapter II, paragraph IX of The Wealth of Nations.

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Demand would be a straight horizontal line, quantity demanded increases at the same price there will be no increase in demand so increase in price. Supply would be a straight vertical line with exactly that much of quantity to have an equilibrium. There is no incentive for supplier to supply more as there is no additional profit (marginal profit) by suppling more oil. So we come to a stagnant.

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Hi Joseph,
We do not offer individual homework help. Best of luck in your course.
Cheers,
Meg

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