Transcript PowerPoint: Market Equilibrium & Disequilibrium

MARKET EQUILIBRIUM & DISEQUILIBRIUM
EQUILIBRIUM

where the supply and
demand curves meet

equilibrium price:
P where QD = QS
equilibrium quantity:
Q where QD = QS

DISEQUILIBRIUM (QD ≠ QS)


shortage
QD exceeds QS
fix: P 


surplus
QS exceeds QD
fix: P 
SHORTAGE
QD exceeds QS
 fix: P 

SHORTAGE
E
e
100
Price (pence per kg)
Supply
d
D
80
Cc
60
b
40
SHORTAGE
B
(300 000)
a
A
20
Demand
0
0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
SURPLUS
E
e
100
Price (pence per kg)
Supply
D
80
SURPLUS
d
(330 000)
Cc
60
b
40
B
a
A
20
Demand
0
0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
THE MARKET
S
Price (£)
A shift in the demand
In
an attempt
to get
curve
to the left
will rid
ofreduce
surplus
stock,
the
demand to
producers
300 from will
500accept
at a
lower
prices.
Lower
price of £5. Suppliers
prices
turn the
attract
do notinhave
some
consumers
to to
information or time
buy.
Thesupply
process
adjust
continues
untiland
thestill
immediately
surplus
disappears
and
offer 600 for sale at
equilibrium
is once
£5. This results
in a
again
reached.
market surplus (S >
D)
Surplus
£5
£3
D1
300
450
600
D
Quantity Bought and Sold (000s)
The Market
S1
Price (£)
A shift in the supply
curve
to the left
The shortage
in the
would lead
to less
market
would
drive
products
being
up prices as some
available
forare
sale at
consumers
every
price.
prepared to pay
Suppliers
more. Thewould
price will
only be able
to offer
continue
to rise
100
units
for
sale at
until the shortage
a
price
of competed
£5 but
has
been
consumers
away and astill
new
desire
to
purchase
equilibrium position
600.been
This reached.
creates a
has
market shortage. (S
< D)
£8
£5
S
Shortage
D
100
350
600
Quantity Bought and Sold (000s)
GOVERNMENTS IMPACT MARKET EQUILIBRIUM
price floor
sets min. P above PE
price ceiling
sets max. P below PE