Page 98 - F1 - AB Integrated Workbook STUDENT 2018-19
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Chapter 7





                            The price mechanism





               5.1 Equilibrium


                    Equilibrium price set by the interaction of supply and demand


                                     P
                                          D                              S

                                 P eqm






                                                                             Q
                                                      Q eqm


               Price higher than equilibrium               Price lower than equilibrium


                 P                                           P
                      D                            S              D                            S
                                   S > D
                P 1


                                                            P 2
                                                                            D > S


                                                 Q                                           Q


               Excess supply – producers drop prices  Excess demand – shortages force
               to clear surplus                            prices up

















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