Transcript Market Equilibrium Lecture

Market Equilibrium
I) Market System
a) Individuals make
choices about
what to consume.
b) These choices
send signals to
producers.
b) Producers respond to that
signal
II) Equilibrium
The Forces of Supply & Demand
balance each other out
S
P
E
D
Q
• A) Where the quantity
supplied = the quantity
demanded; where
price for supply=price
for demand
• B) On a graph, it’s
where the supply and
demand curves
intersect.
III) Shortages
Either supply is too low or
Demand is too high
S
P
E
P1
D
QD
QS
Q
• A) Quantity demanded is
greater than quantity
supplied
• B) Creates upward pressure
on the price
• C) Consumers are willing
to pay more/prices are too
low.
IV) Surplus
Either Supply is too high or
Demand is too low.
S
P1
E
D
QD
QS
• A) Quantity supplied
is greater than quantity
demanded.
• B) Creates downward
pressure on the price.
• C) Consumers are not
willing to pay the
prices/prices are too
high.
V) Change in Demand
• A) Increase in Demand
(shift to the right) causes a
shortage
S
P2
P1
– 1) Prices Rise
– 2) Quantity exchanged rises
E2
E1
Q1
D2
D1
Q2
b) Decrease in demand (shift to
the left) causes a surplus
S
E1
P1
P2
E2
Q2
D2
Q1
D1
• 1) Prices fall
• 2) Quantity exchanged
falls
VI) Change in Supply
• A) increase in supply
(shifts to the right)
causes a surplus
S1
S2
P1
E1
P2
E2
D
Q1
Q2
– 1) prices fall
– 2) quantity exchanged
rises
b) Decrease in supply (shifts to
the left) causes a shortage
• 1) prices rise
• 2) quantity exchanged
S1
falls
S2
P2
P1
D
Q2
Q1