Setting the Stage

The 8-Track Tape Market

Although the task is not an easy one, the buying and selling inclinations of these "tracksters" can be summarized into a table that combines the buyers' demand schedule with the sellers' supply schedule. The table in the exhibit at the right provides such a summary.

A few observations about this table are in order:

• The price of 8-track tapes ranges from a low of 10 cents to a high of 90 cents.


• The quantity demanded ranges from a high of 800 tapes, at the 10-cent price, to a low of 0 tapes, at the 90-cent price. This inverse relation between price and quantity demanded is the law of demand.


• The quantity supplied ranges from a low of 0 tapes, at the 10-cent price, to a high of 800 tapes, at the 90-cent price. This direct relation between price and quantity supplied is the law of supply.

What If?

• 30 Cents: Consider first a 30 cent. Click the [30 Cent] button to highlight this price. At this price, the quantity demanded is 600 tapes and the quantity supplied is 200 tapes. This does not seem to be equilibrium. The buyers cannot buy all that they want. They want to buy 600 tapes, but only 200 tapes are offered for sale by the sellers. This situation, termed a shortage, actually motivates buyers to change the price, to offer a higher price. But equilibrium means that the price does not change. This price is NOT equilibrium.


• 70 Cents: Now consider a 70 cent. Click the [70 Cent] button to highlight this price. At this price, the quantity demanded is 200 tapes and the quantity supplied is 600 tapes. This does not seem to be equilibrium, either. But now the sellers cannot sell all that they want. They want to sell 600 tapes, but only 200 tapes are purchased by the buyers. This situation, termed a surplus, motivates sellers to change the price, to charge a lower price. But once again, equilibrium means that the price does not change. This price is NOT equilibrium either.

Neither price is suitable. Either the buyers are not able to buy what they want or the sellers are not able to sell what they have. This market is not in equilibrium at either price. One side or the other is left wanting, which prompts the unsatisfied side to take corrective action, action that alters the price. A changing price is a sure sign that the market is not at equilibrium.

Equilibrium?

What about a 50 cent price? Click the [50 Cent] button to highlight this price. At this price, the quantity demanded is 400 tapes and the quantity supplied is 400 tapes. This looks promising. The buyers can buy all that they want. The sellers can sell all that they want. Neither buyers nor sellers are motivated to change the price. The forces of demand and supply appear to be in balance.