Market equilibrium

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Intros
Lessons
1. Market Equilibrium Overview:
2. Definition of Market Equilibrium
• Equilibrium
• Equilibrium price
• Equilibrium quantity
• Finding the equilibrium price and quantity example
3. Regulating Using Price
• Case 1: price is below the equilibrium price
• Case 2: price is above the equilibrium price
• Case 1: shortage forces price up
• Case 2: surplus forces prices down
Examples
Lessons
1. Finding the Market Equilibrium
Suppose the demand for ice cream is P = 60 - $2Q_{d}$, and the supply for ice cream is $Q_{s}$ = 10 + 3P. Find the equilibrium price and quantity.
1. Suppose the demand for chocolate is P = 30 - $3Q_{d}$, and the supply for ice cream is $Q_{s}$ = 10 + P. Find the equilibrium price and quantity.
1. Understanding Price Regulations
The price is set below the equilibrium price, then
1. There is an excess of the product
2. There is a shortage of the product
3. There is neither an excess or shortage of the product
4. The quantity demanded is equal to the quantity supplied
2. The demand and supply schedules for phones are:
 Price Quantity Demanded Quantity Supplied 50 500 200 100 400 300 150 300 400 200 200 500 250 100 600
1. Draw a graph for the market of phones and mark the equilibrium price and quantity.
2. Suppose the price of phones is $100. Describe the situation of the phone market. Is there an excess or shortage of phones? How much excess or shortage is there? 3. Suppose that the price of phones is$200. Describe the situation of the phone market. Is there an excess or shortage of phones? How much excess or shortage is there?
3. Understanding Price Adjustments
When there is a shortage of the product, then
1. The quantity supplied is greater than the quantity demanded.
2. The price will decrease until it reaches the equilibrium price.
3. The price will increase until it reaches the equilibrium price.
4. Suppliers lower their production to increase their equilibrium price.
4. The demand and supply schedules for candies are:
 Price Quantity Demanded Quantity Supplied 10 120 70 20 100 90 30 80 110 40 60 130 50 40 150
1. Draw a graph for the market of phones and mark the equilibrium price and quantity.
2. Suppose the price of candy is $20. Describe the situation of the candy market and how the price adjusts. 3. Suppose that the price of phones is$30. Describe the situation of the candy market and how the price adjusts.
Topic Notes

Definitions of Market Equilibrium

An equilibrium is when two opposing forces balance each other. In this case, the quantity demanded and the quantity supply equal to one another.

$Q_{D}$ = $Q_{S}$

Equilibrium Price: the price at which the quantity demanded is equal to the quantity supplied

Equilibrium Quantity: the quality that is bought and sold at the equilibrium price.

In the equilibrium, there is no excess or shortage in the product, and no tendency for the market price to change.

Regulating Using Price

The price of a good controls the quantities that are demanded by consumers and quantities that are supplied by producers. Depending on the price, there might be a shortage of the product, or an excess of the product.

Case 1: Price is set below the equilibrium price. In this case, there is a shortage of the product.

Case 2: Price is set above the equilibrium price. In this case, there is an excess of the product.