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Equilibrium and Price Changes, image - Coggle Diagram
Equilibrium and Price Changes
Market equilibrium
Market equilibrium occurs when demand=supply
Another name for market price is equilibrium price.
Market system
In a market system prices for goods/services are determined by the interaction of demand and supply
excess demand occurs when the quantity demand by consumers exceeds what firms will supply cause market disequilibrium
excess supply
when firms supply more than consumers demand this is known as excess demand which results in disequlibrium
Market demand schedule
market demand schedule is a tabulation of the quantity of a good that all consumers in a market will purchase at a given price.
market supply schedule
Market supply schedule is a tabular statement of the various quantities of the product that all the suppliers in the market are willing to supply at various price levels during a specific time period.
market price
market demand schedule is a tabulation of the quantity of a good that all consumers in a market will purchase at a given price.
Consequences of Price Changes
Shift in Demand Curve
When the demand curve shifts to the right, there is excess demand for the product. So, the market price of the product rises. The increase in consumer demand is an indicator that the product has become more profitable to make and sell. Therefore, firms produce a greater quantity of the same product. So, supply is extended. Firms increase supply to satisfy more human needs and wants. This restores equilbrium.
When the demand curve shifts to the left, the market price falls. The fall in consumer demand indicates that the problem is no longer profitable to produce. The quantity producers are willing and able to supply reduces. Instead, they will allocate more of their resources to the production of goods that are more profitable to produce.
Shift in Supply Curve
When the supply curve shifts to the right, the equilibrium market price will fall as a result of the increase in supply. As a result, demand for the product increases.
When the supply curve shifts to the left, the equillibrium market price will increase. Due to this, the demand for the product will decrease.
Causes of Price Changes
Competitors: Too much competition then producers might change products
Availablity of resources
Global factors such as weather
Technological advancements: Could reduce cost of production.
Cost of production: Lesser cost of production means firms can afford greater supply and vice versa.
Subsidies: Government gives to reduce cost of production
Business expectations: Producers watch economy to see if it would sell or not based on given circumstances.
Changes in quantity demanded/price
A shift in market demand curve. This can happen for multiple reasons such as:
An increase in income
Decrease in unemployment/greater employment/greater job availability.
Price for a substitute good went up.
A shift in market supply curve. This can happen for multiple reasons such as:
Market Disequilibrium
When demand does not equal to supply, it is known as disequilibrium. This causes the market to fall out of balance.
This could be due to either surplus or excessive demand where the quantity supplied isn't enough to satisfy consumers' wants.
Only when a market is in equilibrium or in other words when market supply is equal to market demand, will there be no pressure to change the market price of a product.
A change in the market supply or market demand will cause a change in the equilibrium price
