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Demand and Supply Market

Equilibrium

CHAPTER3

Economics Michael Parkin

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Market Equilibrium

Equilibrium is a situation in which opposing forces balanceeach other. Equilibrium in a market occurs when the pricebalances the plans of buyers and sellers.

The equilibrium price is the price at which the quantitydemanded equals the quantity supplied.

The equilibrium quantity is the quantity bought and soldat the equilibrium price.

Price regulates buying and selling plans.

Price adjusts when plans dont match.

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Market Equilibrium

Price as a Regulator

Figure 3.7 illustrates theequilibrium price and

equilibrium quantity.If the price is $2.00 a bar,the quantity suppliedexceeds the quantity

demanded.There is a surplus of 6million energy bars.

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Market Equilibrium

If the price is $1.00 a bar,the quantity demandedexceeds the quantitysupplied.

There is a shortage of 9million energy bars.

If the price is $1.50 a bar, thequantity demanded equalsthe quantity supplied.

There is neither a shortagenor a surplus of energy bars.

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Market Equilibrium

Price AdjustmentsAt prices above theequilibrium price, a surplusforces the price down.

At prices below theequilibrium price, a shortageforces the price up.

At the equilibrium price,buyers plans and sellersplans agree and the pricedoesnt change until someevent changes eitherdemand or supply.

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Predicting Changes in Price and Quantity

An Increase in Demand

Figure 3.8 shows thatwhen demand increasesthe demand curve shiftsrightward.

At the original price, thereis now a shortage.

The price rises, and thequantity supplied increasesalong the supply curve.

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Predicting Changes in Price and Quantity

An Increase in Supply

Figure 3.9 shows thatwhen supply increases

the supply curve shiftsrightward.

At the original price, thereis now a surplus.

The price falls, and thequantity demandedincreases along thedemand curve.

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Predicting Changes in Price and Quantity

All Possible Changes in

Demand and Supply

A change demand or

supply or both demandand supply changes theequilibrium price and theequilibrium quantity.

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Predicting Changes in Price and Quantity

Change in Demand with

No Change in Supply

When demand increases,equilibrium price rises andtheequilibrium quantityincreases.

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Predicting Changes in Price and Quantity

Change in Demand with

No Change in Supply

When demand decreases,the equilibrium price fallsand the equilibriumquantity decreases.

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Predicting Changes in Price and Quantity

Change in Supply with No

Change in Demand

When supply increases,the equilibrium price fallsand theequilibriumquantity increases.

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Predicting Changes in Price and Quantity

Change in Supply with No

Change in Demand

When supply decreases,the equilibrium price risesand theequilibriumquantity decreases.

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Predicting Changes in Price and Quantity

Increase in Both Demandand Supply

An increase in demand and

an increase in supplyincrease the equilibriumquantity.

The change in equilibrium

price is uncertain becausethe increase in demandraises the equilibrium priceand the increase in supply

lowers it.

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Predicting Changes in Price and Quantity

Decrease in Both Demandand Supply

A decrease in both demand

and supply decreases theequilibrium quantity.

The change in equilibriumprice is uncertain because

the decrease in demandlowers the equilibrium priceand the decrease in supplyraises it.

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Predicting Changes in Price and Quantity

Decrease in Demand andIncrease in Supply

A decrease in demand and

an increase in supply lowersthe equilibrium price.

The change in equilibriumquantity is uncertain because

the decrease in demanddecreases the equilibriumquantity and the increase insupply increases it.

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Predicting Changes in Price and Quantity

Increase in Demand andDecrease in Supply

An increase in demand and a

decrease in supply raises theequilibrium price.

The change in equilibriumquantity is uncertain because

the increase in demandincreases the equilibriumquantity and the decrease insupply decreases it.

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THE END