The Concept of Market Equilibrium

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The Concept of Market Equilibrium
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ECONOMICS LONG TEST NO.1

• October 22, 2008 Wednesday
• Coverage of the Test
• Notes
• Textbook
• Analysis of Demand (Lessons 23-24)
• Analysis of Supply (Lessons 25-26)
• Market Equilibrium (Lessons 27-28)

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Understanding Market Equilibrium

• CASE STUDY
• A MARKET FOR ORGANS

4
Market price is a price set by the interaction of
supply and demand
5

• Equilibrium Price
• price at which the quantity
• demanded by consumers
• and the quantity supplied
• by producers are the same

Equilibrium Quantity output level that
corresponds to the equilibrium price
P
S
(QdQs) E
Pe
D
Qe
Q
http//www.cals.ncsu.edu/course/are012/readings/de
mand.html
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MARKET FOR YOYOS

• DIRECTIONS Graph the Demand and Supply Curves
  for yoyos.
• Answer the questions below based on your graph.
• At what point does QsQd ?
• What is the Equilibrium price and quantity?
• What is the Qs if the market price of yo-yos were
  P4?
• What is the Qd if the market price of yo-yos were
  P4?
• In this example is QsQd? If not, does it show a
  surplus or a shortage? By how much?
• What is the Qs if the market price of yo-yos were
  P2?
• What is the Qd if the market price of yo-yos were
  P2?
• In this example is QsQd? If not, does it show a
  surplus or a shortage? By how much?

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Supply and demand for Yo-yos
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EXCESS DEMAND

• Shortage an amount or extent of
• deficiency due to excess demand

S
E
Pe
A
B
P1
Shortage QdgtQs
D
QS
Qe
QD
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EXCESS SUPPLY

• Surplus - an amount or a quantity in excess of
  what is needed or demanded

Surplus QdltQs
S
A
B
Pe
E
P1
D
QD
QS
Qe
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MARKET EQUILIBRIUM WHEN THERE IS A CHANGE IN
DEMAND
Ex 1. Decrease in no. of Consumers
Ex 2. Increase in Income
http//www.tutor2u.net/economics/revision-notes/as
-markets-equilibrium-price.html
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MARKET EQUILIBRIUM WHEN THERE IS A CHANGE IN
SUPPLY
Ex 1. Increase in workers wages,
Ex 2. Improved technology,
http//www.tutor2u.net/economics/revision-notes/as
-markets-equilibrium-price.html
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• PRICE
• Represents the agreement between the seller and
  the buyer in the market

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• EFFECTS OF A
• PRICE CONTROL
• Role of the Government in pricing

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Effects of a Ceiling Price on Market Equilibrium
Protect the consumer from abuses of seller
housewife
Ceiling Price

• CEILING PRICE the maximum selling price it is
  a government-imposed limit on how high a price
  can be charged on a product

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Effects of a Floor Price on Market Equilibrium
Help the producer recover their production cost
Floor Price
farmer

• FLOOR PRICE a price support it is a
  government-imposed limit on how low a price can
  be charged on a product.

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• GOVERNMENT
• Interferes in the market to help the consumers
  and producers