ECON-200 Lecture Notes - Lecture 20: Marginal Cost, Equilibrium Point, Shortage
18 Sep 2020
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Market equilibrium, shifts equilibrium (market-clearing price/quantity) - no shortage/excess demand/supply. Everyone can buy/sell at current price >> intersection of demand/supply curves. Market price above equilibrium >> surplus supply >> inventories pile up: price must be cut to re-establish equilibrium, make consumers consume, increase demand. Market price below equilibrium >> excess demand >> not enough to go around: price must go up to re-establish equilibrium (ie reselling hybrid cars) >> arbitrage. Demand shifts outward, supply shifts inward >> intersection rises in price more drastically. W/ curve shifts, curve shape still stays the same. Given equations for the demand and supply curves, set them equal to each other to find the equilibrium point. Given: qsupply = 100 + 5psupply, qdemand = 200 - 20pdemand. At equilibrium, qsupply = qdemand, and psupply = pdemand. 100 + 5psupply = 200 - 20pdemand: 100 + 5p = 200 - 20p, 25p = 100, p = 4, q = 100 + 5p = 120.
