Market Equilibrium Market Equilibrium Equilibrium in a market

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. • The equilibrium quantity is the quantity bought & sold at the equilibrium price.

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 surplus e bids down the price till we reach equilibrium.

A Figure Shows Equilibrium P P 2 D A Surplus S P* P 1 A Shortage q* Q

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

Price per unit Qd Qs Shortage (−) Or Surplus (+) millions of bars per week 0. 5 22 0 − 22 1 15 6 − 9 1. 5 10 10 0 2 7 13 +6 2. 5 5 15 +10

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.