Wize University Microeconomics Textbook > Demand and Supply

Market Equilibrium

Market Equilibrium

Market equilibrium is when the quantity supplied = quantity demanded for a product.

Equilibrium with Equations

Example 1

Suppose the demand function for textbooks is given by P = 80 - 2Q and the supply is P = 20 + 2Q. Find the equilibrium price and quantity.

Equilibrium quantity = ________

Equilibrium price = ________

Shortage and Surplus

When the price is below equilibrium there is excess ________ which is also called a ________

Example 2

If the price is currently $30 and you are provided with the same equations as above, find the resulting shortage or surplus.

There is a ________ of ________ units

When the price is above equilibrium there is excess ________ which is also called a ________

Example 3

If the price is currently $70 and you are provided the same equations as above, find the resulting shortage or surplus.

There is a ________ of ________ units.

Example: Equilibrium with a Table

Suppose you are provided the demand and supply schedules below.

Image illustrating Example: Equilibrium with a Table

1. What is the equilibrium (market clearing) price and quantity?

Equilibrium price =

Equilibrium quantity =

70 units

2. If the price is currently $9, what would be the resulting shortage or surplus?

Surplus of 60 units

3. What would be the quantity traded at $9?

50 units

4. If the price is currently $6, what would be the resulting shortage or surplus?

Shortage of 30 units

5. If the price is currently $6, what would be the quantity traded (exchanged/sold)?

50 units

Example: Drawing Graphs

What will happen to equilibrium price and quantity if the demand decreases and supply increases?

Diagram 1

Image illustrating Example: Drawing Graphs

Diagram 2

Image illustrating Example: Drawing Graphs

Diagram 3

Image illustrating Example: Drawing Graphs

Answer: Equilibrium price will decrease and change in equilibrium quantity is uncertain.

Diagram 1 shows that when demand decreases (shifts left), equilibrium price will decrease and quantity will decrease

Diagram 2 shows that when supply increases (shifts right), equilibrium price will decrease and quantity will increase

Diagram 3 shows both results on the same graphs. We can see that equilibrium price will definitely decrease, but the change in equilibrium quantity is uncertain because the supply shift is causing quantity to increase and demand shift is causing quantity to decrease. So it depends how much each line shifts. In diagram 3, the demand and supply shift by the same amount so the equilibrium quantity looks like it's staying the same but if one of the lines shifted more than the other, then quantity could increase or decrease.

Practice: Drawing Graphs

In the market for cellphones (normal goods), there is a technological advancement and at the same time consumers income rises. Which of the following will occur?

A. equilibrium price will rise and equilibrium quantity may rise or fall

B. equilibrium price will fall and equilibrium quantity may rise or fall

C. equilibrium price may rise or fall and equilibrium quantity will fall

D. equilibrium price may rise or fall and equilibrium quantity will rise

E. none of the above

I don't know

Practice: Graphs with One Good

The price will rise and the equilibrium quantity might increase, decrease, or stay the same when the:

A. supply and demand both shift right

B. supply shifts left and demand shifts right

C. supply shifts right and demand shifts left

D. supply and demand both shift left

E. none of the above

I don't know

Practice: Graphs with Two Different Goods

Goods A and B are complementary goods (in consumption). The cost of a resource used in the production of A decreases. As a result:

A. equilibrium price of B will fall and price of A will fall

B. equilibrium price of B will rise and price of A will fall

C. equilibrium price of B will rise and price of A will rise

D. equilibrium price of B will fall and price of A will rise

E. none of the above

I don't know

Practice: Equilibrium with Equations

The demand for burgers is given by Qd = 8000 - 7000P, where Qd is the quantity demanded and P is the price in dollars. The supply for burgers is given by Qs = 4000 + 1000P, where Qs is the quantity supplied and P is the price in dollars. Given these supply and demand relationships:

A) at the equilibrium, the price = $0.50 and the quantity = 4500 burgers.

B) at a price of $1, there is a shortage of 4000 burgers

C) at a price of $1, there is a surplus of 4000 burgers

D) both A and C are correct

E) none of the above

I don't know

Extra Practice

In free and competitive markets, shortages are eliminated by

When the expected future price increases, the

When there is a natural disaster, the

Practice: Demand and Supply

In the market for tomatoes, there is a drought and at the same time the population is growing. Which of the following will occur?

Practice: S&D/Equilibrium

The supply and demand curves for a good are shown below.

Market supply is represented by Qs = 2P. Market demand is represented by Qd = 80 - 2P. What is the equilibrium price and quantity?

Answer in format: $Price, Quantity.

Market demand is represented by the demand equation Qd = 300 - 2P. Similarly, market supply is given as Qs = 2P + 100. What would result if the market price were $15?

Market supply is represented by Qs = 2P. Market demand is represented by Qd = 80 - 2P. What would result if the market price were $10?

The chart represents the hourly wage and quantity of labour supply and demand for Ontario.

When the expected future price increases, the

Drawing graphs

In the market for cellphones (normal goods), there is a technological advancement and at the same time consumers income rises.

Which of the following will occur?

Drawing graphs

The price will rise and the equilibrium quantity might increase, decrease, or stay the same when the:

Practice: Equilibrium 3

Goods A and B are complementary goods (in consumption). The cost of a resource used in the production of A decreases. As a result:

Equations

Suppose that in 2015 there were 400 cell phones sold at a price of $250 each. And in 2016 there were 450 cell phones sold at a price of $300 each. One possible explanation for this is that from 2015 to 2016 the ________ curve shifted to the _____

Metal is a resource used in the production of cars. Tires and cars are used together. What will occur in the market for tires when there is an increase in the price of metal

An improvement in the technology used in producing X, which is a substitute for good Y will

Market demand is represented by the demand equation Qd = 300 - 2P. Similarly, market supply is given as Qs = 2P + 100. What would result if the market price were $15?

Market supply is represented by Qs = 2P. Market demand is represented by Qd = 80 - 2P. What would result if the market price were $10?

Market Equilibrium

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