Equilibrium

Equilibrium in Economics

Definition of Equilibrium

• Equilibrium supply and demand is a market state where the quantity supplied equals the quantity demanded.

• The price at this point is known as the equilibrium price or market clearing price.

Determining Equilibrium Price

• The equilibrium price is determined by the intersection of the supply and demand curves on a graph.

• The shape and position of the supply and demand curves are influenced by various factors, affecting the equilibrium price.

Quantity Equilibrium

• Quantity equilibrium, or the quantity traded, is the point where the quantity consumers want to buy equals the quantity producers are willing to supply.

Market Equilibrium Shifts

Impact of Supply and Demand Changes

• Movements in either demand or supply will affect the market equilibrium.

  • Example: If demand decreases, the supply curve shifts left, impacting equilibrium price and quantity.

Price Controls

Shortage

• A shortage occurs when demand exceeds supply (D > S), leading to consumers wanting more than is available.

• Government may intervene with price ceilings, a maximum price set for certain goods, usually during calamitous events.

Surplus

• A surplus occurs when supply exceeds demand (D < S), meaning there are unsold goods in the market.

• A price floor is a government-imposed minimum price set above the equilibrium price to protect producers from low prices.

Example: Germany Market Equation

• Demand: Qd = 250 - 3P

• Supply: Qs = -250 + 7P

Price and Quantity Points

• Price points to consider in the analysis: 130, 100, 85, 70, and their corresponding quantities.