Demand, Supply, and Equilibrium

Read this section to learn how demand and supply interact with one another to determine prices and quantities that may or may not be optimal. Attempt the "Try It" problem. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter.

Learning Objectives

  1. Use demand and supply to explain how equilibrium price and quantity are determined in a market.
  2. Understand the concepts of surpluses and shortages and the pressures on price they generate.
  3. Explain the impact of a change in demand or supply on equilibrium price and quantity.
  4. Explain how the circular flow model provides an overview of demand and supply in product and factor markets and how the model suggests ways in which these markets are linked.
In this section we combine the demand and supply curves we have just studied into a new model. The model of demand and supply uses demand and supply curves to explain the determination of price and quantity in a market.

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