Market Equilibrium Concepts

Market Equilibrium

• Equilibrium: State when quantity supplied equals quantity demanded at a given price.

• Exists where demand and supply curves intersect.

Surplus and Shortage

• Surplus: Occurs when quantity supplied > quantity demanded; also called excess supply.

• Shortage: Occurs when quantity demanded > quantity supplied; also called excess demand.

Changes Affecting Equilibrium

• Increase in Demand: Leads to higher equilibrium price and quantity.

• Decrease in Demand: Leads to lower equilibrium price and quantity.

• Increase in Supply: Leads to lower equilibrium price and higher quantity.

• Decrease in Supply: Leads to higher equilibrium price and lower quantity.

Simultaneous Changes in Demand and Supply

• Both changing makes prediction complex.

• Higher demand + lower supply -> Higher price, unclear effect on quantity.

• Smaller demand increase with larger supply decrease also results in higher price, reduced quantity.