Market Equilibrium

These flashcards cover key concepts related to market equilibrium, including definitions and examples of equilibrium price, quantity, surplus, and shortage.

Market Equilibrium

The balance between the supply of and demand for a good or service, where there is no tendency for the price to rise or fall.

Equilibrium Price (P*)

The price at which buyers are willing to purchase the exact quantity that sellers are willing to produce.

Equilibrium Quantity (Q*)

The amount of goods or services that are bought and sold at the equilibrium price.

Surplus

A situation where the price is above equilibrium, leading to excess stock that suppliers must lower the price to clear.

Shortage

A situation where the price is below equilibrium, causing high demand and sellers needing to raise the price.

Shift in Demand

A change in consumer preferences or income that shifts the demand curve, affecting market equilibrium.

Shift in Supply

Changes in production costs or technology that can shift the supply curve, impacting market equilibrium.

Increase in Demand

When demand shifts right, leading to an increase in both equilibrium price and quantity.

Decrease in Demand

When demand shifts left, resulting in a decrease in both equilibrium price and quantity.

Increase in Supply

When supply shifts right, leading to a decrease in equilibrium price while equilibrium quantity increases.

Decrease in Supply

When supply shifts left, resulting in an increase in equilibrium price and a decrease in equilibrium quantity.