The market is depicted through an intersection of the supply and demand curves. This intersection represents a market equilibrium, and itβs where the quantity demanded equals the quantity supplied, determining the equilibrium price and quantity.
- Equilibrium
- The point where the demand and supply curves intersect.
- At this price, the market clears with no shortages or surpluses.
- Disequilibrium
- Surplus: When quantity supplied > quantity demanded (price is too high).
- Shortage: When quantity demanded > quantity supplied (price is too low).
- Changes in Equilibrium
- Shifts in Demand or Supply:
- An increase in demand shifts the curve right, raising both price and quantity.
- An increase in supply shifts the curve right, lowering price and increasing quantity.
- Simultaneous Shifts: If both curves shift, the impact on price and quantity depends on the magnitude of each shift.
- Shifts in Demand or Supply:
- Price Controls
- Price Ceiling: A maximum price below equilibrium, causing shortages.
- Price Floor: A minimum price above equilibrium, causing surpluses.