Exploring Equilibrium

what is unique about an equilibrium price This is a topic that many people are looking for. star-trek-voyager.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, star-trek-voyager.net would like to introduce to you Exploring Equilibrium. Following along are instructions in the video below:

“Alex tabarrok in this video ni want to review just a little bit equilibrium nand. Nand. The adjustment process ordinarily we won t be doing nmuch review. In this class.

You can always go back nand re watch a video. But in this case. I want to emphasize na few points and the material is very important let s review nbut. We ll do so quickly okay.

Here s the equilibrium price. The price. Where nthe quantity. Demanded is equal to the quantity.

Supplied..


Why is that the equilibrium price. Because at any other price nforces are put into play which push the price towards nthe equilibrium price so at a price of 80 per barrel nfor example. We would have a surplus. The quantity supplied would be ngreater than the quantity demanded sellers have more goods nthan.

They have customers and because of that they had nincentive to push the price down towards the equilibrium price. What if the price is less than nthe equilibrium price well in this case. Nthe quantity. Demanded will exceed the quantity supply buyers will want the good.

But there won t be enough nof the good to go around in other words nthere. ll be a shortage because the buyers have to compete nto obtain the good they re going nto push the price up again towards the equilibrium price. The equilibrium price nis. The only stable price.

There is similar kind of argument nwe can show why this quantity the quantity such that nquantity demanded is equal to quantity supply by this quantity nis the equilibrium quantity..


Namely choose any other quantity and let s show that nthat can t be an equilibrium. So suppose that the quantity nbought and sold was 50 million barrels nof oil per day notice that for this last barrel of oil. Which is being bought and sold buyers are willing to pay up to 90 nfor that barrel of oil where for one more barrel of oil nthey re willing to pay 90 on the other hand nsellers are willing to sell that barrel of oil or one more nbarrel of oil for just 50. So there s a big potential gain nfrom trade here of 40 indeed for any quantity below nthe equilibrium quantity there are unexploited gains nfrom trade now in economics.

We assume that nif you put a potential gain from trade in front of people nthey re going to find it they re going to be able to realize that if only they bought and sold na little bit more both the buyers and the sellers ncould be better off. So. That s why we assume that nthe quantity. Bought and sold will be pushed nto.

The equilibrium quantity. Because it s only nat. The equilibrium quantity that all the gains from trade nhave been exploited in a free market could the quantity nbought and sold be greater than nthe equilibrium. Quantity well not for any significant nperiod of time imagine for example that n90 million barrels of oil were being bought and sold well for this last barrel of oil.

Nthe suppliers are willing to sell that barrel of oil for 90 nthat s their cost..


They require at least 90 to stay in business nand sell that barrel of oil on the other hand buyers are nwilling to pay for that barrel of oil. Only 50. So there s a lot of waste going on here suppliers are spending more nto produce the barrel than the barrel is worth to buyers indeed at any quantity above nthe equilibrium quantity there is waste and we don t expect waste to last very long nin this market precisely because if without any intervention nsuppliers are not going to be able to sell a product to buyers nfor more than the buyers are willing to pay for that product for more than the product nis worth to the buyers. So for this reason.

We don t expect waste nto last in a free market. Either. So. A free market maximizes nthe gains from trade remember also that nthe gains from trade can be broken down into two parts the consumer surplus nand of course.

The producer surplus couple of other points njust to finish this off notice that the equilibrium price splits. The demand curve ninto. Two parts the goods are bought by the buyers nwho value them the most the buyers with nthe highest demands. These are therefore.

The buyers nand..


These are the non buyers and goods are sold by the sellers nwith the lowest costs. So these are the sellers and these with the higher cost nare. The non sellers okay. Let s summarize this whole thing free market.

Maximizes nthe gains from trade or the gain from trade nare maximized at the equilibrium nprice and quantity. And what this means is that nthe supply of goods is bought by the buyers with nthe highest willingness to pay the supply of goods are sold by nthe suppliers with the lowest costs and between the buyers nand the sellers. There are no unexploited gains nfrom trade and no wasteful trades. Okay that concludes our review non to some new material announcer.

If you want nto test yourself click practice questions or if you re ready to move on njust click. ” ..

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