Topic 6: Equilibrium

When we combine the supply and demand curves we get

equillibrium price and equillibrium quantitiy

Equillibrium price

Quantity demanded=Quantity supplied

Surplus

When quantity supplied is more than quantity demanded.

Producers will lower their prices to get back to equillibrium

Shortage

When quantity demanded is greater than quality supplied

producers will raise prices to get back to equilibrium

Supply and demand analysis

Before the change

• draw supply and demand

• label original equilibrium price and quantity

The change

• did it effect supply or demand first?

• which detrminant caused the shift

• draw increase and decrease]

After the change

• label the new equilibrium

• what happed to the price

• what happened to quantity

Simoltaneously

Supply and demand both shift

Pi Qd Pd Qd

We know Q will decrease

We do not know if P will increase or decrease

Simultaneous table