fv7 - market disequilibrium
AP Microeconomics Study Guide: Market Disequilibrium and Changes in Equilibrium
Page 1: Equilibrium and Disequilibrium
Market Equilibrium
Quantity demanded equals quantity supplied.
Visualized as the intersection of the demand and supply curves.
Market Disequilibrium
Occurs when quantity demanded does not equal quantity supplied.
Caused by prices above or below equilibrium.
Page 2: Shortages and Surpluses
Shortages
Occur when quantity demanded exceeds quantity supplied.
Results in too many consumers wanting a good compared to the available supply.
Surpluses
Occur when quantity supplied exceeds quantity demanded.
Results in too many firms willing to sell a good with fewer consumers willing to buy.
Price Manipulation
Low prices lead to shortages as fewer suppliers are willing to sell.
High prices lead to surpluses as more suppliers are willing to sell but fewer consumers buy.
Page 3: Adjustment in the Long Run
Market Trends
Markets tend to move towards equilibrium over time.
In a surplus, prices decrease; in a shortage, prices increase.
Total economic surplus is maximized at equilibrium.
Page 4: Consumer Surplus, Producer Surplus, and Deadweight Loss
Consumer Surplus
Difference between what consumers are willing to pay and what they actually pay.
Producer Surplus
Difference between what producers are willing to accept and what they actually receive.
Deadweight Loss
Occurs when market is not at equilibrium, leading to lost surplus for either consumers or producers.
Page 5: Changes in Market Equilibrium
Curve Shifts
Changes in supply or demand can shift the curves, altering equilibrium price and quantity.
Demand Shift
An increase in demand shifts the curve right, raising both equilibrium price and quantity.
A decrease in demand shifts the curve left, lowering both equilibrium price and quantity.
Page 6: Supply Shift
Supply Shift
A rightward shift increases quantity and decreases price.
A leftward shift decreases quantity and increases price.
Page 7: Double-Shift Problems
Double Shift
Occurs when both supply and demand curves shift simultaneously.
One of the new equilibrium points (price or quantity) becomes indeterminate.
Example: Increased demand for textbooks vs. increased paper prices.
Page 8: Key Terms to Review
Consumer Surplus
Represents additional benefit consumers receive from lower prices.
Deadweight Loss
Loss of economic efficiency when equilibrium is not achieved.
Producer Surplus
Reflects the benefit to producers from selling at higher prices.
Page 9: Definitions
Demand Curve Shift
Change in quantity demanded at every price point due to factors other than price.
Economic Surplus
Difference between total benefits to consumers and total costs to producers.
Law of Supply
As price increases, quantity supplied also increases.
Market Disequilibrium
Occurs when quantity demanded does not equal quantity supplied.
Market Equilibrium
The stable point where quantity demanded equals quantity supplied.
Page 10: Supply Curve Shift
Supply Curve Shift
Change in quantity supplied at every price level due to factors other than price.
Can be caused by changes in production costs, technology, regulations, or number of sellers.
This guide summarizes the key concepts of market disequilibrium and changes in equilibrium, providing a foundational understanding for AP Microeconom