ECON 200 Lecture Notes - Lecture 9: Economic Equilibrium, Demand Curve
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ECON 200 Full Course Notes
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Equilibrium: a situation in which the market price has reached the level at which quantity supplied = quantity demanded. Basically, the demand curve and supply curve intersect! Also sometimes called the market-clearing price because buyers will buy everything they want and sellers will sell everything they want to sell. Equilibrium price: price where all goods produced are purchased. Equilibrium quantity: quantity supplied and quantity demanded at the equilibrium price. The law of supply and demand says that a market will naturally move towards the equilibrium. When it is not there, either a surplus or a shortage occurs. Occurs when market price is above equilibrium price because sellers will produce more than what is demanded. Sellers respond by lowering prices until equilibrium is reached: lower prices = increased quantity demanded and decreased quantity supplied, this is a movement along the curve! Occurs when market price is below equilibrium price because buyers will demand more than is what is supplied.
