Market Equilibrium

Market Equilibrium/Equilibrium Price (be able to identify this on a graph as well)

Market Equilibrium: A condition of price stability where the quantity demanded equals the quantity supplied. Equilibrium Price: The price at which the quantity demanded and the quantity supplied are equal.

Label the following:

Part A: Equilibrium Part B: Surplus Part C: Shortage Distance 1: 8 Distance 2: 7

How will an increase in supply impact equilibrium? (provide a hypothetical scenario)

a supply increase would decrease the equilibrium. For example, if three new soap companies opened up, then other producers would want to compete with their prices.

How will an increase in demand impact equilibrium? (provide a hypothetical scenario)

an increase in demand would increase the equilibrium. For example, if coke prices skyrocket, pepsi demand would increase, increasing the equilibrium for pepsi.

Shortage (be capable of identifying this on a graph)

occurs when the quantity demand is greater than the quantity supplied.

Surplus (be capable of identifying this on a graph)

occurs when the quantity supplied is greater than the quantity demanded.

How will a decrease in demand impact equilibrium? (provide a hypothetical scenario)

a decrease in demand would decrease the equilibrium. For example, if Apple products prices decrease, that would decrease the equilibrium.

How will a decrease in supply impact equilibrium? (provide a hypothetical scenario)

a decrease in supply would increase the equilibrium. For example, if instead of three new soap companies opening up, three soap companies closed down, then the supply would go up because now there is less competition for suppliers, and now there are more people wanting to buy their shoes.