Macroeconomics
Asdemanderscompeteagainsteachotherforthelimitedsupply,thepricetendstorise.Aspricestarts to rise, two things happen: 1. Some consumersstopdemandingthegoodathigherpricesbecausetheymightnotbeableto afford it or can replace it with cheaper ones. This reduces Qd. 2. Qs increases as suppliers fnd themselves receiving a higher price for their product and shift additional resources to produce it. Thisprocesscontinuesuntiltheshortageiseliminatedsincethemarketnaturallyadjustsitselfbackto equilibrium at point X. Thisscenarioappliestothemechanismofanauctionwhereatfrst,theitemrepresentsthelimitedQsat a lowpricethatallowsmanypeopletobidforit.Thereisashortagesincemanypeoplewanttheitem but only one is being sold. As potential buyers offer higher prices, some bidders drop out until the person who offers thehighestpricegetstheitem.Inotherwords,pricesriseuntilquantitydemanded and quantity supplied are equal. Excesssupplyorsurplus occurswhen quantitysuppliedexceedsquantitydemanded ata pricethat is higher than the equilibrium price . It indicates that the price set by suppliers is too high for consumers who refuse to buy at this price level.
Table 6: Market Disequilibrium - Excess Supply Price of a Tablet ($)
Quantity of Tablets Demanded
Quantity of Tablets Supplied
80
700
100
100
600
200
120
500
300
140
400
400
160
300
500
180
200
600
200
100
700
Inthisschedule,excesssupplyoccursatthepriceof$160,$180,and$200wherethereisasurplusof 200, 400, and 600 units respectively.
On the demand-supply diagram, excess supply is represented above the equilibrium point as follows:
38
© 2024 ACHIEVE ULTIMATE CREDIT-BY-EXAM GUIDE|MACROECONOMICS
Made with FlippingBook - Online Brochure Maker