imported>Doug Williamson |
imported>Doug Williamson |
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| The interaction of [[demand]] and [[supply]], resulting in an equilibrium quantity and price being set by the market.
| | In relation to goal-setting, Specific, Measurable, Achievable, Realistic and Time-specific. |
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| When demand exceeds supply, market prices are likely to rise.
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| When supply exceeds demand, market prices are likely to fall.
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| When demand and supply are equal, market prices are likely to remain stable.
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| The mechanism described above is a result of the interaction of the [[demand curve]] and the [[supply curve]] in a given market.
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| <span style="color:#4B0082">'''Example 1: Demand exceeds supply'''</span>
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| When demand exceeds supply, sellers will run out of stock and realise that they can sell the goods at a higher price.
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| Sellers will increase their prices accordingly.
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| This will cause demand to fall.
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| It will also cause supply to increase.
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| Demand will continue to fall, and supply will continue to increase, until demand and supply are equal.
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| At this point prices will in theory be stable, because the previous imbalance of demand and supply has been eliminated.
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| <span style="color:#4B0082">'''Example 2: Supply exceeds demand'''</span>
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| When supply exceeds demand, sellers will be unable to sell all their stock.
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| Sellers will have to cut their prices to reduce stock.
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| This will cause demand to rise.
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| It will also cause supply to decrease.
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| Demand will continue to rise, and supply will continue to fall, until demand and supply are equal.
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| At this point prices will again in theory be stable.
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| == See also ==
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| * [[Equilibrium]]
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| * [[Free market]]
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| * [[Demand]]
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| * [[Demand curve]]
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| * [[Supply]]
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| * [[Supply curve]]
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