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Market Equilibrium

Market Equilibrium. Market Equilibrium. Equilibrium in a market occurs when the price balances the plans of buyers and plans of sellers. The equilibrium price is the price at which the quantity demanded equals the quantity supplied.

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Market Equilibrium

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  1. Market Equilibrium

  2. Market Equilibrium • Equilibrium in a market occurs when the price balances the plans of buyers and plans of sellers. • The equilibrium price is the price at which the quantity demanded equals the quantity supplied. • The equilibrium quantity is the quantity bought & sold at the equilibrium price .

  3. Price as a Regulator • The price of a good regulates the quantity demands and supplied. • If price is too low , the quantity demanded > the quantity supplied , and we have a shortage . The shortage bids up price till we reach equilibrium. • If price is too high , the quantity supplied > the quantity demanded , and we have a surplus . The surpluse bids down the price till we reach equilibrium.

  4. A Figure Shows Equilibrium D P P2 P* P1 A Shortage q*Q S A Surplus

  5. Market Equilibrium Table p. 68 shows : The equilibrium price at which Qd = Qs Above the equilibrium price : Qs > Qd A surplus Below the equilibrium price : Qd > Qs A shortage

  6. Price Adjustment A shortage forces the price up: • When there is a shortage ,producers raise the price. When price rises Qd decreases and Qs increases until we reach equilibrium. A surplus forces the price down: • When there is a surplus ,producers cut the price. When price falls Qs decreases and Qd increases until we reach equilibrium.

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