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Market Equilibrium: Combining Supply and Demand

Market Equilibrium: Combining Supply and Demand

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Figure 3.8

Equilibrium Price and

Equilibrium Quantity



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Equilibrium



Note: Price adjustment represents

movements along the curves and not shifts

of the curves.

3d. Shifts in the demand and/or the supply

curve may result in a price adjustment.

Figures 3.8 and 3.9 will be useful.



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4. Using the Supply and Demand Model: A Case Study



• 4a. Figures 3.11, 3.12, and 3.13 show the

effects of shifts in the demand and supply of

peanuts on the price of peanuts. This

example shows the confusion between

movements along the demand curve and

shifts in the demand curve. See Figure 3.10.



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Figure 3.9

Effects of a Shift in

Demand



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Figure 3.10

Effects of a Shift in Supply



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5. Interference with Market Prices

• 5a. One form of government interference with the market

process is the use of price controls. Price ceilings keep prices

from rising, whereas price floors keep prices from falling.

5b. Price ceilings are always associated with shortages

because the ceiling keeps the price from rising to equilibrium.

Thus, the quantity demanded always exceeds the quantity

supplied. Rent controls are a classic example. Black markets

usually develop. Use Figure 3.14.

5c. Price floors are associated with surpluses. Use Figure 3.15.

Governments must purchase the surplus to support the price.



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Figure 3.11

Peanut Production in the United States



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Figure 3.12

Supply and Demand for

Peanuts



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Figure 3.13

Effects of a Drought in the

Southeast



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Figure 3.14

Predicted Effects of an

Increase in the Peanut

Quota



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Market Equilibrium: Combining Supply and Demand

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