MARKET EQUILIBRIUM

Market Equilibrium

• a state of balance when the quantity demanded is equal to quantity supplied.

• an implicit agreement between how much buyers and sellers are willing to transact.

Equilibrium Price

• “market-clearing price”

• is the price at which the producer can sell all the units he wants to produce and the buyer can buy all the units he wants.

Equilibrium Quantity

• when the quantity demanded is equal to the quantity supplied in a competitive market.

• The willingness and ability for buyers to purchase are the same as sellers' willingness and ability to produce for the market.

Steps in Determining Market Equilibrium

TABLE

• If the data is presented through a table, just search for the same quantity demanded or supplied.

GRAPH

• If it is through a graph, look for the point of intersection of the demand or supply curves.

SOLVING

• It can be through solving the demand and supply functions.

Changes in Market Equilibrium

When the demand or supply changes, the price and quantity change, resulting in a new equilibrium price and quantity.

Disequilibrium

The economy is out of balance, and it cannot repair itself in the short run.

Shortage

A situation where the quantity demanded is greater than the quantity supplied (Qd > Qs). The reasons why there is excess demand is due to few produced goods and too much demand.

Surplus

A situation where quantity supplied is greater than quantity demanded (Qs > Qd). Surplus happens because there is less demand for the product and there are too many produced goods.

Price Controls

When the government is stepping in and reining in the economy, they impose mandatory price controls to manage the affordability of different goods and services.

Price Ceiling

the maximum legal price a seller may charge for a product or service. The seller can charge below it but not above it.

Price Floor

the minimum price a buyer can purchase for a product or service. The buyers can purchase above the minimum price but not below it.