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Supply:
The supply curve/schedule/function/ shows the relationship between the market
price of a commodity and the quantity that producers are willing and able to supply,
ceteris paribus.
P QS 6 P
S
1 2 5
4
2 4
3
3 6
2
4 8
1
5 10 0 Q
0 2 4 6 8 10 12
Law of supply:
S curve slopes upwards = slope is positive.
P and QS are positively/directly related.
As P increases, cet par, QS increases P and QS move in the same direction. Graphically, a change
As P decreases, cet, par, Qs decreases in P leads to a movement along the same curve.
Market:
It is a system or mechanism (not necessarily a physical place) through which
consumers and suppliers interact. (at every P we some up the Q)
Equilibrium:
Graphically, it is the point of intersection between market demand and market
supply of a certain good.
Market D (or S) is the horizontal summation of all individual D curves (or S) in a given
market.
Equilibrium price is the price at which consumers demand just as much as suppliers
supply = it is the price at which QD = QS
It is also called the “market clearing price” (no excess demand nor excess supply).
At equilibrium, the market is in balance, there’s stability: no need for anything ar
change if nothing else changes.
University of Balamand
Faculty of Business & Management
Survey of Economics
Finding Equilibrium:
1. Graphically: it is the point of intersection between the market D and the
market S curves.
2. From the schedule: locate the P where QD = QS (market)
3. Algebraically: (from the functions)
Set QD = QS get P then replace in either equations to get Q.
Disequilibrium:
Any price other than P* leads to disequilibrium: QD>QS or QS>QD which is unstable. A
case of instability leads to market adjustments so that stability gets restored.