Market Equilibrium and Change in Equilibrium In this

Market Equilibrium and Change in Equilibrium In this lesson, students will identify market equilibrium and how it can change. Students will be able to identify and/or define the following terms: Equilibrium Disequilibrium Surplus Shortage

If there are lots of apples in the market and little demand for apples, market disequilibrium occurs.

EQUILIBRIUM: 20 items for $10 ea $10 Price $5 Quantity 10 20 30

What if the price is $5 ea? (qty? ) $10 Price $5 Quantity 10 20 30

What if the price is $5 ea? (qty? ) $15 $10 Price $5 Quantity 10 20 30 How many will be supplied? Demanded?

What if the price is $5 ea? (qty? ) $15 $10 Price $5 Quantity 10 20 30

Shortage • SHORTAGE IS A SITUATION IN WHICH QUANTITY DEMANDED IS GREATER THAN QUANTITY SUPPLIED. • Another term for shortage is excess demand. • When a shortage occurs, prices must be raised to restore the market to equilibrium.

What if the output (qty) is too high? $10 Price $5 Quantity 10 20 30

Equilibrium • EQUILIBRIUM OCCURS WHEN QUANTITY SUPPLIED EQUALS QUANTITY DEMANDED. • Economists state that a market will tend toward equilibrium. • (THE INVISIBLE HAND!!!!) • This means that price and quantity will gradually move towards their equilibrium levels.

Equilibrium is the point where the supply curve intersects the demand curve.

Let’s Review Disequilibrium! • Disequilibrium occurs when the quantity supplied does not equal the quantity demanded. • Disequilibrium occurs when the price is not right. • If the price is too high or too low for that particular market, disequilibrium occurs.

Surplus • SURPLUS OCCURS WHEN QUANTITY SUPPLIED IS GREATER THAN QUANTITY DEMANDED. • Another term for surplus is excess supply. • When a surplus occurs, the price must be lowered to restore the market to equilibrium.

Too many cookies and not enough consumers creates a surplus.

When quantity demanded is created than quantity supplied, a shortage occurs.

Prices • Market disequilibrium occurs when the price is not right for that particular market. • If the price is too low for that particular market, demand is encouraged and shortage occurs. • If the price is too high for that particular market, demand is discouraged and surplus occurs.

Short Term Vs Long Term • Short term: What happens right away • Long term: What takes a while to happen (No specific length of time… it depends…) • Prices can be adjusted in the short term to address shortages and surpluses • Changing production (output) is a medium to long term solution (Why? )

The beautiful thing about price is that it can easily be changed to restore equilibrium to the market.

Fortunately, price is flexible and market equilibrium can be restored.

Questions for Reflection: • How does equilibrium differ from disequilibrium? • Why do surpluses occur? • Why do shortages occur? • How can a market in disequilibrium be restored to equilibrium? • How must prices be changed to solve the problems of surplus and shortage?