Lecture 5 Flashcards
Describe what market Equilibrium is
Equilibrium is a situation in which opposing forces balance each other.
Equilibrium in a market occurs when the price balances the plans of buyers
and sellers.
(when the graphs intercept)
What is equilibrium price
The equilibrium price is the price at which the quantity demanded equals the
quantity supplied
What is equilibrium quantity
The equilibrium quantity is the quantity bought and sold at the equilibrium
price
Describe a surplus
At prices above the
equilibrium price, a
surplus forces the price
down. (the product is too expensive and not being sold)
Describe a shortage
At prices below the
equilibrium price, a
shortage forces the price
up. (demand is very high, people will pay more)
Is there a shortage or surplus at equilibrium price?
Neither. At the equilibrium price, buyers’ plans and sellers’ methods agree, and the price doesn’t change until an event changes demand or supply.
what happens when demand decreases?
-Price decreases
-quantity supplied decreases
-curve shifts leftward
-at OG price there is a surplus
What happens when demand increases
-increase in price
-increases in quantity supplied
-curve shifts rightward
-at OG price there is now a shortage
What happens when supply increases?
-Price decreases
-quantity increases
-curve shifts rightward
-at OG price, there is now a surplus
What happens when supply decreases
-price increases
-quantity demanded decreases
-curve shifts leftward
-at OG price, there is now a shortage
What happens when both supply and demand increase?
-increases equilibrium quantity
* the change in equilibrium price is uncertain because the increase in demand raises the price and the increase in supply lowers it*
What happens when demand and supply decrease?
-decreases equilibrium quantity
* price is uncertain because a decrease in demand lowers price and a decrease in supply raises price*
What happens when demand decreases and supply increases?
-lowers equilibrium price
-change in equilibrium quantity is uncertain
What happens when demand increases and supply decreases?
- raises equilibrium price
-change in equilibrium quantity is uncertain