Equilibrium

Flashcards covering key concepts related to market equilibrium, shifts in supply and demand, and their effects on equilibrium price and quantity.

Equilibrium

A situation in which the market price has reached the level where quantity supplied equals quantity demanded.

Equilibrium Price

The price at which the quantity supplied equals the quantity demanded.

Market-clearing Price

Another term for equilibrium price, where no surplus or shortage exists.

Equilibrium Quantity

The quantity supplied and demanded at the equilibrium price.

Surplus

A situation where quantity supplied exceeds quantity demanded at a given price.

Shortage

A situation where quantity demanded exceeds quantity supplied at a given price.

Demand Shift

A change in the demand curve due to factors such as number of buyers or consumer preferences.

Supply Shift

A change in the supply curve due to factors such as input prices or technology.

Ice Cream Example

At an equilibrium price of $2.00, 7 ice-cream cones are supplied and demanded.

Factors that Shift Demand

Number of buyers, income, consumer preferences, prices of related goods, expected future prices.

Factors that Shift Supply

Number of sellers, input prices, technology, prices of related goods in production, expected future prices.

Analysis of Equilibrium Changes

A three-step process: decide if it's a supply or demand shift, the direction of the shift, and the effect on equilibrium price and quantity.

Increased Demand Effect

A rightward shift in demand increases equilibrium price and quantity.

Decreased Supply Effect

A leftward shift in supply increases equilibrium price and decreases equilibrium quantity.

Practice Question Focus

Identifying effects on equilibrium based on shifts in supply/demand and market outcomes.