Market Equilibrium
Price as a Regulator
Figure illustrates the equilibrium price and equilibrium quantity in the market for CD-Rs. If the price of a disc is $2, the quantity supplied exceeds the quantity demanded and there is a surplus of discs.
equilibrium quantity
is the quantity bought and sold at the equilibrium price. Price regulates buying and selling plans. Price adjusts when plans don't match.
equilibrium price
the price at which the quantity demanded equals the quantity supplied.
Market surplus
: the amount by which quantity supplied (Qs) exceeds quantity demanded (Qd) at a given price; excess supply. Price is too high. Qs > Qd, a surplus. Buyer and seller behaviors kick in. Price will fall to equilibrium price, Pe.
When a market is in equilibrium
A market is in equilibrium when price adjusts so that quantity demanded equals quantity supplied.
Surplus
A market is in equilibrium when price adjusts so that quantity demanded equals quantity supplied. If price is greater than equilibrium level, there will be a surplus, which forces price down.
Shortage
A market is in equilibrium when price adjusts so that quantity demanded equals quantity supplied. If price is less than equilibrium level. there will be a shortage. which forces price up.
No one is in charge
Adam Smith's invisible hand leads the market to equilibrium
Price Adjustments
At prices above the equilibrium, a surplus forces the price down. At prices below the equilibrium, a shortage forces the price up. At the equilibrium price, buying plans selling plans agree and the price doesn't change.
Market
Interaction of buyers and sellers
Cause
Markets reach equilibrium because buyers have a demand behavior (raise price, buy less, and vice versa) and sellers have a supply behavior (raise price, supply more, and vice versa).
disequilibrium
When prices change A shift in either demand or supply causes the price to change but A price change does NOT cause ... the demand curve to shift or ... the supply curve to shift.
At equilibrium
Quantity demanded = quantity supplied at the equilibrium price
Market shortage
The amount by which quantity demanded (Qd) exceeds quantity supplied (Qs) at a given price; excess demand. Price is too low. Qs < Qd, a shortage. Buyer and seller behaviors kick in. Price will rise to equilibrium price, Pe.
Equilibrium
a situation in which opposing forces balance each other. Equilibrium in a market occurs when the price balances the plans of buyers and sellers.
Market equilibrium
demand = supply no shortage, no surplus, price wont change until there is a shift in demand or in supply.
Market shortage
excess demand
Market surplus
excess supply
Quantity supply > quantity demanded
surplus
Equilibrium
only one price and quantity combination is compatible with the intentions of both buyers and sellers. Market price Intersection of supply and demand curves Quantity buyers will buy = quantity sellers will sell
Quantity supply < quantity demanded
shortage