Chapter 4 (ECON 1001)

Equilibrium: a term used to suggest that demand and supply are equal

The point at which there is no tendency for change. A market is in equilibrium when the quantity supplied equals the quantity demanded

→ Buyers and sellers will change things until they balance out

Equilibrium price: when the demand and supply (the market) are in equilibrium

Equilibrium quantity: The quantity demanded and supplied in equilibrium

→ Better to charge almost the same price for a product as competitors

→ The market decided equilibrium price

→ When there are shortages, prices will increase to decrease the number of people buying coffee to get it back into equilibrium

Equilibrium depends on the interdependence principle

Planned economies: Centralized decisions are made about what is produced, how, by whom, and who gets what

Market economies: Each individual makes their own production and consumption decisions, buying and selling in markets

Markets: A setting beginning together potential buyers and sellers

Shortage: When the quantity demanded exceeds the quantity supplied

Surplus: When the quantity supplied exceeds the quantity demanded

When there’s an increase in demand:

  1. Causes demand curve to shift right

  2. Leads to a new supply-equals-demand equilibrium

  3. Leading to an increase in the price

  4. Leading to an increase in quantity

When there’s a decrease in demand:

  1. Causes demand curve to shift to the left

  2. Leads to a new supply-equals-demand equilibrium

  3. Leading the dreasing prices

  4. Leading to decreasing quantity

When there’s an increase in supply:

  1. Causes supply curve to shift to the right

  2. Leading to a new supply-equals-demand equilibrium

  3. Leading to a decrease in price

  4. Leading to an increase in quantity

When there’s a decrease in supply:

  1. Causes supply curve to shift to the left

  2. Leading to a new supply-equals-demand equilibrium

  3. Leading to an increase in price

  4. Leading to a decrease in quantity

BIG demand shift & SMALL supply shift:

  1. Decrease in both supply and demand curves, both curves shift left

  2. Prices end up falling

  3. Decrease in the quantity

SMALL demand shift & BIG supply shift:

  1. Decrease in both supply and demand curves, both curves shift left

  2. Prices end up rising

  3. Decrease in quantity