Summary
Market equilibrium occurs when the quantity demanded equals the quantity supplied, resulting in no excess demand or supply. The equilibrium price is where the demand and supply curves intersect.
- Equilibrium Price — the price at which the quantity demanded equals the quantity supplied. Example: If 500 units of squirrel repellant are demanded and supplied at 5.
- Market Disequilibrium — occurs when the quantity demanded does not equal the quantity supplied. Example: At a price of $2.50, supply exceeds demand, leading to a surplus.
- Price Changes — occur due to shifts in demand or supply curves. Example: An increase in demand for electric vehicles can raise their price.
Exam Tips
Key Definitions to Remember
- Equilibrium Price: The price at which demand equals supply.
- Market Disequilibrium: When demand does not equal supply, leading to surplus or shortage.
Common Confusions
- Confusing surplus with shortage.
- Misunderstanding the impact of demand and supply shifts on price.
Typical Exam Questions
- What is market equilibrium? Market equilibrium is when the quantity demanded equals the quantity supplied.
- How does bad weather affect supply? Bad weather reduces supply, causing prices to rise.
- What happens when demand increases? An increase in demand typically raises the equilibrium price.
What Examiners Usually Test
- Ability to identify equilibrium on a demand and supply diagram.
- Understanding the causes and consequences of price changes.