(Econ) 4 questions.

>> And this is working with diagrams feature   that appears in Chapter 3.   We're going to look   at an exhibit title moving to equilibrium.   So let's first look at a market that we're going to put quantity   of a good on the horizontal axis and the price   on the vertical axis and we've got a downward sloping demand   curve that represents law of demand,   price and quantity demanded moved in opposite directions   and then we have a upward sloping supply curve   that represents the law of supply,   price and quantity supplied moved in the same directions   and let's pick a particular price here.   Let's suppose that we pick this price   and this price is 15 dollars.   Now, the first thing we want to know is,   what is the quantity supplied at this price?   So to get that, we come over from 15 dollars all the way   over to the supply curve and then come   down to the horizontal axis   and let's suppose this number is 150,   so our quantity supplied here is 150.   Let's get our quantity demanded, we go from 15 dollars   over to the demand curve and then come   down to the horizontal axis, the quantity axis   and let's suppose this number is 50   so 50 is our quantity demanded.   Now you'll notice that at 15 dollars here,   our quantity supplied which is 150 is greater   than our quantity demanded which is 50, all right?   So this is the definition of a surplus.   So here is our surplus on our diagram, we have a surplus here   of 150 minus 50 or 100 units, there's a surplus   that have 150-- or I'm sorry, a surplus of 100 units.   Now, what happens when there is a surplus?   Well, think of what suppliers would do, they have a surplus   of 100 units and how do you get rid of a surplus?   Well, one of the things you do is begin to lower a price   and as you lower a price, the quantity demanded increases   and the quantity supplied decreases.   So, suppliers are going to start lowering price, right?   You have to start lowering price from 15 to 14 to 13 and so forth   and so on until there is no longer any surplus   and that would be at this point right here.   Let's point this point as E as equilibrium   and the price let's say here is 10 dollars.   Now, what is the quantity demanded at 10 dollars?   Well, we go from 10 dollars out to the demand curve and come   down here so the quantity demanded let's say is 100 units.   What is the quantity supplied at 10 dollars?   The answer is go from 10 dollars to the supply curve,   come on down in the horizontal axis,   the quantity supplied is 100.   Ten dollars is our equilibrium price, E-Q-U-I-L-I-B-R-I-U-M,   that's our equilibrium price and this quantity, 100,   is our equilibrium quantity.   All right, so let's just recap here.   If we have a price like 15 dollars and there's a surplus   at that price which means quantity supplied is greater   than quantity demanded, price will move   down until it hits the equilibrium level.   Now, let's start with the different price,   let's again look at our diagram, we'll put quantity   and price on the axis again.   Again, we're going to have our downward sloping demand curve   and our upward sloping supply curve and this time we're going   to start at a price of 5 dollars, so here's 5 dollars.   Now, let's figure out what our quantity supplied is.   Well, we go out from 5 dollars to the supply curve,   come down to the horizontal axis and this is 50   as our quantity supplied this time.   But what is our quantity demanded?   Our quantity demanded is we start at 5, go all the way   to the demand curve, come down and let's say this is 150,   that's our quantity demanded this time.   So our quantity demanded is now greater   than our quantity supplied.   Our quantity demanded, 150,   is greater than our quantity supplied, 50.   What do we have here?   We have what is called a shortage.   This is how we define a shortage.   Shortage is defined as quantity demanded greater--   they've been greater than quantity supplied.   And what will happen if there's a shortage?   Well, people want to buy more of this good, the 150 units   than sellers want to sell, they only want to sell 50.   So, buyers are going to start to b up the price,   the price is going to begin to rise, all right.   Price is going to begin to rise and as the price rises,   the quantity demanded is going to fall   and the quantity supplied is going to increase until we get   to this point, point E again where we're   at equilibrium, all right.   And that equilibrium, the quantity demanded   and the quantity supplied are the same.   All right, so recapping.   Again, we're looking at here at the market with P and Q,   price and quantity, on our axis, we got a--   we have a downward sloping demand curve   and an upward sloping supply curve.   If the price is here, let's say P1, there is going   to be a surplus of this good and price is going to begin to fall.   If we're at a price like P2, we have a shortage of this good   and price is going to begin to rise.   And so, the convergence is on equilibrium,   this point right here, and the equilibrium price, PE,   and the equilibrium quantity, QE.   And what is so special about equilibrium price?   Well, at that price, the quantity supplied of the good   and the quantity demanded of the good are one and the same.