Study Notes
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.