14.1 R.lucas Supply Function R.lucas Supply Function O Explanation One: Output and prices are determined by both supply and demand, and the corresponding P and Y of point e are price and output O Explanation TWO: When supply and demand are already given in each market, there must be a price P which ensures that supply of one market can satisfy its demand. This is the concept of market clearing. In fact, if economy is constituted by n different markets, and only the previous n-1 market can realize equilibrium of supply and demand, the supply and demand of last market will realize equilibrium. And this is the concept of Walras's Laws 复济院14.1 R.lucas Supply Function v R.lucas Supply Function ¤Explanation One：Output and prices are determined by both supply and demand, and the corresponding P and Y* of point e are price and output. ¤Explanation Two：When supply and demand are already given in each market, there must be a price P which ensures that supply of one market can satisfy its demand. This is the concept of market clearing. In fact, if economy is constituted by n different markets, and only the previous n-1 market can realize equilibrium of supply and demand, the supply and demand of last market will realize equilibrium. And this is the concept of Walras’s Laws