Chapter 3

The price at the meeting point

the quantity at the meeting point

a situation in which the quantity supplied is greater than the quantity demanded.

situation in which the quantity demanded is greater than the quantity supplied.

• e.g.
• Buyers also have an incentive to offer higher prices when there is a shortage because when they can’t buy as much as they want at the going price, they will try to outbid other buyers by offering sellers a higher price. Competition will push prices up whenever there is a shortage

the price at which the quantity demanded is equal to the quantity supplied.

the quantity at which the quantity demanded is equal to the quantity supplied.

1.The supply of goods is bought by the buyers with the highest willingness to pay.

2.The supply of goods is sold by the sellers with the lowest costs.

3.Between buyers and sellers there are no unexploited gains from trade nor any wasteful trades.

Together these three conditions imply that the gains from trade are maximized.