#03.03 --- Market Equilibrium and Disequilibrium (9.03)

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Video #03.03 Market Equilibrium and Disequilibrium

Market Equilibrium and Disequilibrium:

Market Equilibrium and Disequilibrium Chapter Learning Outcomes: Explain the characteristics of a market in equilibrium and disequilibrium (either a surplus or a shortage). Graphically illustrate markets in equilibrium and disequilibrium and describe the market’s responses to these market conditions. Calculate equilibrium price and quantity through equations of supply and demand in order to determine if a market is in equilibrium or disequilibrium.

Market Demand and Supply:

Market Demand and Supply

Market Equilibrium through graphs:

Market Equilibrium through graphs A market: Any place – either physical or virtual – where buyers and sellers come together to trade. The Market Price: The price at which quantity demanded of good equals quantity supplied. The price at which most buyers and sellers agree to trade. Also called the equilibrium price.

Market Disequilibrium through graphs:

Market Disequilibrium through graphs A surplus: The situation when quantity supplied is greater than quantity demanded, occurs above market price. A shortage: The situation when quantity demanded is greater than quantity supplied, occurs below market price.

Market Disequilibrium through graphs:

Market Disequilibrium through graphs

Market Equilibrium and Disequilibrium through equations:

Market Equilibrium and Disequilibrium through equations Quantity demanded and quantity supplied can also be expressed through mathematical equations: Qd = 1,800 – 60P Qs = 400 + 10P When the market is in equilibrium, Qd and Qs must be the same value since that is point where the two curves intersect. Since Qd and Qs are the same value at the equilibrium point, we can set these two equations equal to each other, solve for P (price) and then solve for Qd and Qs.

Market Equilibrium and Disequilibrium through equations:

Market Equilibrium and Disequilibrium through equations Qd = 1,800 – 60P Qs = 400 + 10P 1800 – 60P = 400 + 10P 1400 = 70P 20 = P Qd = 1,800 – 60*20 = 600 Qs = 400 + 10*20 = 600 So at the equilibrium point, the price is $20, and the quantity demanded and supplied is 600 units.

Market Equilibrium and Disequilibrium through equations:

Market Equilibrium and Disequilibrium through equations Qd = 1,800 – 60P Qs = 400 + 10P So at the equilibrium point, the price is $20 and the quantity demanded and supplied is 600 units. But if the current price is $25, the market is not in equilibrium. It is in disequilibrium, and with a price above the equilibrium price, there is a surplus in the market. Qd = 1,800 – 60*25 = 300 units Qs = 400 + 10*25 = 650 units As the market adjusts, the price will fall to the equilibrium price and a quantity of 600 units.

Market Equilibrium and Disequilibrium:

Market Equilibrium and Disequilibrium Chapter Learning Outcomes: Explain the characteristics of a market in equilibrium and disequilibrium (either a surplus or a shortage). Graphically illustrate markets in equilibrium and disequilibrium and describe the market’s responses to these market conditions. Calculate equilibrium price and quantity through equations of supply and demand in order to determine if a market is in equilibrium or disequilibrium.

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