ECON 202 Lecture Notes - Lecture 2: Economic Equilibrium, Market Clearing, Price Ceiling

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12 Jun 2017
● Market
Market: Any arrangement in which buyers and sellers interact to determine the
price and quantity of goods exchanged
Market Equilibrium Price
Market Equilibrium Price: The price at which Quantity Demanded (QD) =
Quantity Supply (QS)
Equilibrium occurs where the Demand Curve intersects the Supply Curve
AKA- Market clearing price
If not at equilibrium, the price and quantity are not equal
● Surplus
Surplus: The condition present when price rises above the equilibrium price
Quantity Supplied (QS) is greater than Quantity Demanded (QD)
Price goes down
● Shortage
Shortage: Condition present when price falls below the equilibrium price (PEQ)
In case of shortage, QS is less than QD
Price Ceiling
Price ceiling: a restriction that prohibits a price from rising from above a
specific value
Above the equilibrium/above the surplus
No effect on the market
Selling above the price ceiling leads to corruption
Price Floor
Price Floor: A restriction that prohibits price from falling below a specific value
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