Equilibrium

Equilibrium

1. What is equilibrium?

   • A price at which it is ensured that exactly everything that is produced (supplied) is purchased (demanded)

2. Equilibrium price and quantity are determined by demand and supply

3. It occurs on the Demand/Supply graph where the demand curve intersects with the supply curve

4. Excess Demand

   • This occurs when the price is below the equilibrium price - price is so low that the quantity demanded exceeds the quantity supplied
     • Competition will eventually force price upwards towards equilibrium price

5. Excess Supply

   • This occurs when the price is set above the equilibrium price - the price is too high for all the quantity supplied to be purchased
     • Eventually, excess supply will put downward pressure on the selling price

6. Changes in Demand

   • Increased Demand
     • Results in an increase in equilibrium price and quantity
   • Decreased Demand
     • Results in a decrease in equilibrium price and quantity