Economics 1021A/B Chapter Notes -Economic Equilibrium, Demand Curve

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24 Apr 2012
Department
Nicole Wallenburg
Mr. Parkin
Economics
12-04-23
Economics Textbook Notes
Market Equilibrium
An equilibrium is a situation in which opposing forces balance each other. Equilibrium in
a market occurs when the price balances the plans of buyers and seller.
A market moves towards its equilibrium because price regulates buying and selling plans,
and price adjusts when plans don’t match
Equilibrium Price
The price at which the quantity demanded equals the quantity supplied
Equilibrium Quantity
The quantity bought and sold at equilibrium, price
Price as a Regulator
The price of a good regulates the quantities demanded and supplied if the price is too
high, the quantity supplied exceeds the quantity demanded. If the price is too low, the
quantity demanded exceeds the quantity supplied.
Price Adjustments
If price is below the equilibrium, there is a shortage and that if the price is above the
equilibrium, there is a surplus
1. A Shortage Forces the Prices Up
a. Some producers raise their prices
b. Some producers increase their output
i. This pushes up the price towards its equilibrium.
ii. The rising price reduces the shortage because it decreases the
quantity demanded and increases the quantity supplied
iii. When the price has increases to the point at which there is no
longer a shortage, the forces moving the price stop operating and
the price comes to rest at its equilibrium
2. A surplus Forces the Price Down
a. Some producers cut their prices
b. Some producers scale back production
i. This makes the price fall towards its equilibrium
ii. The falling price decreases the surplus because it increases the
quantity demanded an decreases the quantity supplied
iii. When the price has fallen to the point at which there is no longer a
surplus, the forces stop operating and the price comes to rest at its
equilibrium
3. The Best Deal Available of Buyers and Sellers
a. As the price at which the quantity demanded and the quantity supplied are
equal, neither buyers nor sellers can do business at a better price
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