Market Equilibrium equilibrium The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change. Excess Demand excess demand or shortage The condition that exists when quantity demanded exceeds quantity supplied at the current price.Market Equilibrium Excess Demand P FIGURE 3.9 Excess Demand, or Shortage At a price of $1.75 per bushel, quantity demanded exceeds quantity supplied. Equilibrium point 2.50 When excess demand exists, there is a tendency Price of soybeans per bushel ($) for price to rise 1.75 When quantity demanded equals quantity supplied, Excess demand = shortage excess demand is eliminated and the market is in equilibrium. Here the equilibrium price is $2.50 and the equilibrium quantity 25,000 35,000 50,000 Q is 35,000 bushels. Bushels of soybeans When quantity demanded exceeds quantity supplied, price tends to rise. When the price in a market rises, quantity demanded falls and quantity supplied rises until an equilibrium is reached at which quantity demanded and quantity supplied are equal.Market Equilibrium Excess Supply excess supply or surplus The condition that exists when quantity supplied exceeds quantity demanded at the current price.Market Equilibrium Excess Supply P CExcess supply = surplus CA FIGURE 3.10 Excess Supply, 3.00 or Surplus At a price of $3.00, quantity 2.50 (Equilibrium point supplied exceeds quantity demanded by 20,000 bushels. Price of soybeans per bushel ($) This excess supply will cause the price to fall. 20,000 35,000 40,000 Q Bushels of soybeans When quantity supplied exceeds quantity demanded at the current price, the price tends to fall. When price falls, quantity supplied is likely to decrease and quantity demanded is likely to increase until an equilibrium price is reached where quantity supplied and quantity demanded are equal.Market Equilibrium Changes In Equilibrium When supply and demand curves shift, the equilibrium price and quantity change. P 4 FIGURE 3.11 The Coffee Market: A Shift of Supply and 2.40 Subsequent Price Adjustment Before the freeze, the coffee Initial market was in equilibrium at equilibrium a price of $1.20 per pound. So At that price, quantity Price of coffee per pound ($) demanded equaled quantity 1.20 supplied. Excess The freeze shifted the demand (shortage) at initial price supply curve to the left (from So to S ), increasing the D equilibrium price to $2.40. 6.6 9.9 13.2 Q Billions of pounds of coffee per yearMarket Equilibrium a. Demand shifts Changes In Equilibrium L. Increase in income: 2. Increase in income: 3. Decrease in income: X is a normal good X is an inferior good X is a normal good Pike F Price FIGURE 3.12 Examples of D Supply and Demand Shifts for Product X Quantity Quantity Quantity A. Decrease in income 3. Increase in the price 6. Increase in the price X is an inferior good of a substitute for X of a complement for & P Ch h Quantity Quantity 7. Decrease in the price 8. Decrease in the price of a substitute for x of a complement for X Price Quantity Quantity b. Supply shifts 9. Increase in the coy 10. Decrease in the cost of production of X of production of X P Price P Ch QuantityNormal Good References: What gets produced? Supply Issues Demand Issues Is the market in Equilibrium?What gets How is it produced Who gets what's produced produced Normal Books Using resources such as paper, labor and through This will then be distributed to different bookstores. Through this, Good (hardbound) machineries, this will be mass produced into number of books will be made available to readers depending on their copies by Printing Press. specific need, be it educational, fictional or instructional books. Substitute Kindle Kindle is small hand held electronic device for reading This device is available on different gadget stores and could be books. This is also made using different resources bought by the general public. Since you can also use it to read such as electronic parts, labor and machineries by articles or informations, serving the same purpose as books, this Technology companies. makes Kindle a substitute product. Complement Book-light This is a small device that you can clip on the edge of As a complement product of books, this is mainly bought by your book to give you a better lighting while reading. bookworms. Since the make and features of this product is This is produced by manufacturing companies using mainly for the purpose of reading hardbound books, this make it electronic parts, labor and capital a perfect complement product