Equilibrium Market Prices

Economics

The concept of the equilibrium price

Equilibrium means a state of equality between demand and supply

D S

Demand and Supply Schedules for Oil

Price Per Unit Quantity Demanded Quantity Supplied

($) Million Barrels Per Day Million Barrels Per Day

20 50 75

19 52 72

18 54 69

17 56 66

16 58 63

15 60 60

14 62 57

13 64 54

12 66 51

11 68 48

10 70 45

9 72 42

8 74 39

Demand and Supply Schedules for Oil

Price Per Unit Quantity Demanded Quantity Supplied

($) Million Barrels Per Day Million Barrels Per Day

20 50 75 Excess Supply

19 52 72

18 54 69

17 56 66

16 58 63

15 60 60 Market Equilibrium

14 62 57

13 64 54

12 66 51

11 68 48

10 70 45

9 72 42

8 74 39 Excess Demand

The Market EquilibriumPrice

Quantity

Demand

P1

Q1

The normal free market equilibrium

price is P1 and quantity is Q1

Supply

Excess DemandWhen Price is low there is EXCESS

DEMAND Price

Quantity

Demand

P1

Q1

Supply

P2

Q2 Q3

Excess SupplyWhen Price is high there is EXCESS

________Price

Quantity

Demand

P1

Q1

Supply

P3

Q2 Q3

Shifts in market demand

Tell the person next to you, reasons why demand curve shifts outwards

Increased income.. Increased p__________ Tastes and F_________ Increased price of S___________ Decreased price of C__________

Changes in market demand

Price

Quantity

D2

Supply

P2

Q1

Price

Quantity

D1

Supply

P1

Q1

D3

Q3

P3

D1

Q2

P1

An Outward Shift in DemandAn Inward Shift in Demand

Demand for a product will increase if;

Increased income

Changes in market demandPrice

Quantity

D1

Supply

P2

Q1

Price

Quantity

D1

Supply

P1

Q1

D3

Q3

P3

D2

Q2

P1

An Outward Shift in DemandAn Inward Shift in Demand

Demand for product will decrease if

Decreased Income

Changes in market supply

Factors affecting Supply are????:

WAGE COSTS T________ Costs Raw material C_______ W________ Government tax and S________

Changes in market supply

Price

Quantity

S1

Q1

Price

Quantity

D1

S1

P1

Q1 Q3

P3

D2

Q2

P1

An Outward Shift in SupplyAn Inward Shift in Supply

S2

P2

S3

Increase supply if wages fall

If transport costs __________

Changes in market supply

Price

Quantity

S1

Q1

Price

Quantity

D1

S1

P1

Q1 Q3

P3

D2

Q2

P1

An Outward Shift in SupplyAn Inward Shift in Supply

S2

P2

S3

DECREASE supply if wages increase

If transport costs_________

Group Work

Match the diagram to the scenario

Draw Demand and Supply Diagrams

1 2 3

4 5

Shifts in market demand and market supply

Price

Quantity

D1

S1

P1

Q1

Price

Quantity

D1

S1

P1

Q1

D3

Q2

P2

D2

Q2

P2

An Outward Shift in Demand and a Rise in Supply

An Inward Shift in Demand and a fall in Supply

S2

S2