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Using Words

The most basic way to talk about the Market Equilibrium for a product is using words. For example, suppose we want to talk about the market for red wine in the United States. As we noted in the sections on supply and demand the quantity of red wine supplied and the quantity of red wine demanded depend on several factors. As we previously stated, most economists believe that (for most goods) the price of the product is the biggest factor in determining how much consumers are willing and able to buy and how much producers are willing and able to sell. 

We could use words to describe this: if the price of a case of wine was $10 we would expect wine producers to be willing to sell 25,000 cases of wine a month. If the price of a case of wine were $20 we would expect the producers to be willing to sell 45,000 cases of wine a month. However, from the consumer's perspective, if the price of a bottle of wine was $10 we would expect 50,000 cases of the wine to be demanded in a month. Similarly, if the price of a bottle of wine were $20 we would expect only 30,000 cases of wine to be sold.

In the first situation where the price of red wine was $10 the market was facing a shortage and in the second situation where the price of wine was $20 the market was facing a surplus of red wine. Now consider if the price of red wine was $16.25. At this price, wine producers would be willing to supply 37,500 cases of wine a month and consumers would be willing to demand 37,500 cases of wine a month. At this price ($16.25) and quantity (37,500 cases) the market is said to be in equilibrium.


 

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