Prices & Equilibrium
Prices act as signals to the rest of the economy. If products are priced too high, consumers will not buy them; if products are priced too low, then suppliers will not supply enough of them to meet demand. In a perfect world (wherein Aaron Rodgers never gets old and throws touchdowns forever), the market will be in equilibrium, which is the point at which the supply and demand curves meet on a graph. By finding the equilibrium point, we can determine the most efficient quantity and price for a given product.
The video at right is a cheaply-illustrated demonstration of market equilibrium. |
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