Supply and Demand (Market Equilibrium)

Market Equilibrium

State of market where both buyers and sellers are happy with the price and quantity offered

Equilibrium Price (Market-Clearing Price)

Specific state of market equilibrium

• quantity supplied = quantity demanded

it just does

Markets naturally move towards equilibrium because ?

surplus, lower, less

Example of non-equilibrium situation

• price set higher than equilibrium = causes excess quantity supplied (aka ?)

  • eventually, sellers will ? prices AND supply ? until equilibrium is reached

shortage, raise, more

Example of non-equilibrium situation

• price set lower than equilibrium = causes excess quantity demanded (aka ?)

  • eventually, sellers will ? prices AND supply ? more until equilibrium is reached

Law of Supply and Demand

Prices of goods adjust to bring supply and demand into balance