1.1 Market equilibrium

Analyze how changes in non-price determinants of demand/supply cause an excess in the market and lead to a new equilibrium price.

A change in a non-price determinant of demand or supply causes the market to be in disequilibrium at the original equilibrium price. Price must change in order to eliminate the excess demand or excess supply and continues to change until the market clears at the new equilibrium price and equilibrium quantity.

what is market equilibrium?

Market Equilibrium is defined as a state if balance between different forces, such that there is no tendency to change. When quantity demanded is equal to quantity supplied, there is market equilibrium. Market equilibrium is determined at the point where demand curve intersects the supply curve. The prices is called the equilibrium price and the quantity is the equilibrium quantity.

Explain how demand and supply interact to produce market equilibrium

When a market is in disequilibrium and there is an excess demand or supply of the good the price must change in order to eliminate the excess. As price changes it leads to a change in quantity demanded and supplied and price continues to change until quantity demanded equals quantity supplied and the market clears.