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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1-If we define trade gain as value minus cost, is there any gain at the equilibrium price?
2-Assuming the answer is positive, would that mean most trade gains are minimal?
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.
Except for the mistakes at 1:35 ("At a high price there is a relatively low demand.") and 1:45 ("As the price goes down the demand for oil increases.") the video is well done.
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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.
Can you site the pages on which Adam Smith uses the term "invisible hand" and what he is stating in each instance of his use of the term?
Demand function Qd = 249 - P
Supply function Qs =P -17
What is the equilibrium price and Equilibrium quantity, show this graphically showing the equilibrium point.
what if everyone valued oil the same way? what if the costs of producing oil were the same to everyone?
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.
Suppose that the inverse Demand Function for movie in arusha city is P=120-Q, for college students and P=120-2Q for other residents, while the supply function for movie in the city is Qs=200+2P then find;
1. Equilibrium price and quantity then show it graphically.