Study Notes on Market Equilibrium and Disequilibrium

Describing Market Equilibrium

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• Understanding of Demand and Supply Interaction

  • Combining demand and supply to observe their interaction in a market compared to individual analysis.

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• Supply and Demand Schedule for Coats

  
  

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  • Table of Prices and Quantities:
    

    Price ($)	Quantity Supplied (Millions)	Quantity Demanded (Millions)
    25	40	200
    50	80	160
    75	120	120
    100	160	80
    125	200	40
    Market Equilibrium
    Definition: The situation when quantity supplied equals quantity demanded, represented in this case at a price of $75 for coats where both quantities are 120 million.
    Graphical Representation: The intersection of the demand and supply curves on a graph represents market equilibrium.
    Disequilibrium in Markets

    • Definition of Disequilibrium: This occurs when quantity supplied and quantity demanded are not equal. The market will adjust towards equilibrium.

    • Types of Disequilibrium:

      • Surplus: Occurs when quantity supplied exceeds quantity demanded.

      • Example Scenario: If production costs for coats rise, increasing the market price from $75 to $100, then:

        • At $100:

        • Quantity Supplied = 160 million, Quantity Demanded = 80 million → Surplus of 80 million coats.

      • Graphical Elements in The Surplus:

        • Intersection point reflects original equilibrium.

        • A vertical dashed line shows quantity at 120 and a horizontal dashed line shows price at 75.

        • A second vertical dashed line illustrates the surplus point at quantity of 160.

      • Shortage: Occurs when quantity demanded exceeds quantity supplied.

      • Example Scenario: If sellers reduce the price of coats from $75 to $50, then:

        • At $50:

        • Quantity Supplied = 80 million, Quantity Demanded = 160 million → Shortage of 80 million coats.

      • Graphical Elements in The Shortage:

        • First intersection point defined as prior equilibrium.

        • Second vertical and horizontal dashed lines display new maximum demanded and supplied qualities.

    Effects of Changes in Supply and Demand on Equilibrium

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    • Shifting of curves signifies changing market dynamics, influenced by external factors.

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    • Decrease in Demand Example: If weather turns warm reducing demand for coats, the demand curve shifts leftward.

      • Resulting Impact:

      • Equilibrium quantity decreases.

      • Illustrative graph shows:

        • New Demand Curve situated to the left of the original,

        • New intersection produces new equilibrium price approximately $62.5 at 100 million coats.

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    • Changes in Supply and Demand Dynamics:

      
      

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      • Table of Supply and Demand Changes:
        

        Supply Status	Demand Increases (Quantity)	Demand Decreases (Quantity)
        Stagnant Supply	Quantity Increases, Price Increases	Quantity Decreases, Price Decreases
        Supply Increases	Quantity Increases, Price Decreases	Quantity may increase or decrease, Price may increase or decrease
        Supply Decreases	Quantity Decreases, Price Increases	Quantity Affects Variably, Price Decreases
        Market Equilibrium in Car Sales

        • Example table of supplied vs. demanded quantities for a specific car model at various price levels:

          Price ($)	Quantity Supplied	Quantity Demanded
          $12,000	10,000	50,000
          $14,000	20,000	40,000
          $16,000	30,000	30,000
          $18,000	40,000	20,000
          $20,000	50,000	10,000

        • Market Equilibrium Determination:

          • Established at price level of $16,000, where Quantity Supplied matches Quantity Demanded at 30,000.

        Graphical Representation of Market Equilibrium

        • Supplied and demanded quantities graphed:

          • Graph Details:

          • X-axis: Quantity (from 0 to 60,000 in increments of 10,000)

          • Y-axis: Price (from 0 to 25,000 in increments of 1,000)

          • The quantities intersect illustrating equilibrium point for $16,000.

        Conditions of Disequilibrium in Car Market

        • Surplus and Shortage Examples Further Explained:

          • Surplus: At price $18,000, Quantity Supplied = 40,000, Quantity Demanded = 20,000, Surplus = 20,000.

          • Shortage: At price $14,000, Quantity Demanded = 40,000, Quantity Supplied = 20,000, Shortage = 20,000.

        Shift Impacts on Markets

        • Understanding how changes in supply (increase or decrease) can impact equilibrium is critical:

          • Graph examples will further illustrate the nuances of curves shifting:

          • Graph Formats Include: Increase in Demand with Decrease in Supply, Decrease in Demand with Decrease in Supply, and No Change scenarios across respective impacts.

          • Resulting intersections indicate new prices and quantities qualitatively illustrated and quantified on composition of graphs.

        • Drawing scenarios for further understanding is encouraged. Reference to observed demand shifts will crystallize concepts around equilibrium movement and pricing dynamics in microeconomic contexts.