1. Demand, Supply, and Market Equilibrium

2. Market Equilibrium equilibrium The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change. Excess Demand excess demand or shortage The condition that exists when quantity demanded exceeds quantity supplied at the current price.

3. Market Equilibrium Excess Demand Excess Demand, or Shortage At a price of £1.75 per bushel, quantity demanded exceeds quantity supplied. When excess demand exists, there is a tendency for price to rise. When quantity demanded equals quantity supplied, excess demand is eliminated and the market is in equilibrium. Here the equilibrium price is £2.50 and the equilibrium quantity is 35,000 bushels. When quantity demanded exceeds quantity supplied, price tends to rise. When the price in a market rises, quantity demanded falls and quantity supplied rises until an equilibrium is reached at which quantity demanded and quantity supplied are equal. £

4. Market Equilibrium Excess Supply excess supply or surplus The condition that exists when quantity supplied exceeds quantity demanded at the current price.

5. Market Equilibrium Excess Supply Excess Demand, or Shortage At a price of £3.00, quantity supplied exceeds quantity demanded by 20,000 bushels. This excess supply will cause the price to fall. When quantity supplied exceeds quantity demanded at the current price, the price tends to fall. When price falls, quantity supplied is likely to decrease and quantity demanded is likely to increase until an equilibrium price is reached where quantity supplied and quantity demanded are equal. £

6. Market Equilibrium Changes In Equilibrium When supply and demand curves shift, the equilibrium price and quantity change. The Coffee Market: A Shift of Supply and Subsequent Price Adjustment Before the freeze, the coffee market was in equilibrium at a price of £1.20 per pound. At that price, quantity demanded equalled quantity supplied. The freeze shifted the supply curve to the left (from S0 to S1), increasing the equilibrium price to £2.40. £

7. Market Equilibrium Changes In Equilibrium Examples of Supply and Demand Shifts for Product X

8. Demand and Supply in Product Markets: A Review Here are some important points to remember about the mechanics of supply and demand in product markets: 1. A demand curve shows how much of a product a household would buy if it could buy all it wanted at the given price. A supply curve shows how much of a product a firm would supply if it could sell all it wanted at the given price. 2. Quantity demanded and quantity supplied are always per time period—that is, per day, per month, or per year. 3. The demand for a good is determined by price, household income and wealth, prices of other goods and services, tastes and preferences, and expectations.

9. Demand and Supply in Product Markets: A Review Here are some important points to remember about the mechanics of supply and demand in product markets: 4. The supply of a good is determined by price, costs of production, and prices of related products. Costs of production are determined by available technologies of production and input prices. 5. Be careful to distinguish between movements along supply and demand curves and shifts of these curves. When the price of a good changes, the quantity of that good demanded or supplied changes—that is, a movement occurs along the curve. When any other factor changes, the curve shifts, or changes position. 6. Market equilibrium exists only when quantity supplied equals quantity demanded at the current price.