Figure 5-1 The Determination of Quantity Exchanged in
Disequilibrium
The key to the answer is the fact that any voluntary market transaction
requires both a willing buyer and a willing seller. So, if, at a particular
price, quantity demanded is less than quantity supplied, demand will
determine the amount actually exchanged, while the rest of the quantity
supplied will remain in the hands of the unsuccessful sellers. Conversely,
if, at a particular price, quantity demanded exceeds quantity supplied,
supply will determine the amount actually exchanged, while the rest of
the quantity demanded will represent unsatisfied demand of would-be
buyers. Figure 5-1 illustrates the general conclusion:
In disequilibrium, quantity exchanged is determined by the lesser of
quantity demanded and quantity supplied. At E, the market is in
equilibrium, with quantity demanded equal to quantity supplied. For any
price below the quantity exchanged will be determined by the supply
curve. For any price above the quantity exchanged will be determined
by the demand curve. Thus, the solid portions of the S and D curves show
the actual quantities exchanged at different disequilibrium prices.
p 0 ,
p 0 ,