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.
| | Security Market Line. |
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| | | The Security Market Line is a graphical presentation of the Capital asset pricing model formula. |
| 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 the market is said to clear, and prices will in theory be stable.
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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 the market is again said to clear, and prices will again in theory be stable.
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| == See also == | | == See also == |
| * [[Equilibrium]] | | *[[Capital asset pricing model]] |
| * [[Free market]] | | *[[Capital Market Line]] |
| * [[Demand]] | | *[[Security Market Line]] |
| * [[Demand curve]]
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| * [[Supply]]
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| * [[Supply curve]]
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