MGEA02H3 Study Guide - Final Guide: Theth, Demand Curve, Shortage
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MGEA02H3 Full Course Notes
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At (q*,p*) we are in equilibrium (qs = qd). This outcome is efficient (as it is impossible to make one party better off without making another worse off). At any level of output above q*, say q = q0, we are not in equilibrium. Suppliers refuse to sell more than q* at the price per unit of p* (due to the increasing mc of production). The lowest price suppliers are willing to sell the q0th unit for is psup. Similarly, demanders refuse to buy more than q* at the price p* per unit (due to the diminishing mu). The highest price demanders are willing to pay for the q0th unit is pd. Our diagram reveals that whenever a trade is proposed at a quantity above the equilibrium level (q*) suppliers want to earn a price above. P* (like psup) and demanders want to pay a price below p* (like pd).
