2.3 Market Equilibrium

The supply and demand curves jointly determine the price and quantity at which goods and services are bought and sold. The demand curve shows the quantities that consumers want to buy at various prices, and the supply curve shows the quantities that firms want to sell at various prices. Unless the price is set so that consumers want to buy exactly the same amount that suppliers want to sell, either some buyers cannot buy as much as they want or some sellers cannot sell as much as they want.

When all traders are able to buy or sell as much as they want, we say that the market is in equilibrium: a situation in which no participant wants to change its behavior. At the equilibrium price, consumers want to buy the same quantity ...

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