Equilibrium of Supply & Demand

Equilibrium Equilibrium Price: the price and quantity at which the product demanded by consumers and quantity supplied by producers are equal. It is where they meet and agree to a price and quantity. Demand & Supply Schedule A business owner will need to gather information about their product; the price and how many people are willing to purchase. They experiment and create a demand & supply schedule.

$10 10 40 $8 15 35 $6 25 $4 $2 Price per sandwich Quantity Demanded Quantity Supplied $10 10 40 $8 15 35 $6 25 $4 $2

Surplus: the result of quantity supplied being greater than quantity demanded. Prices are too high Shortage: the result of quantity demanded being greater than quantity supplied. Prices are too low.

Shifts in the Supply & Demand Curve

Disequilibrium Occurs when quantity demanded and quantity supplied are not in balance. Causes either a surplus or a shortage Shift in Demand & Equilibrium Price Remember: Shifts occur in the Demand curve because of 6 factors. Income, consumer taste, consumer expectations, market size, substitutes and complements.

A decrease in demand because of consumer tastes causes the demand curve to shift to the LEFT. Notice that new demand curve (D2) intersects the supply curve at a lower price. D1 D2

Shift in Quantity & Equilibrium Price Remember: Shifts occur in the supply curve when something in the market other than price prompts producers to offer products at different prices. 6 factors cause a shift: input costs, productivity, technology, government action, producer expectations and number of producers.

Notice that the new supply curve (S2) causes a new lower price. b. An increase in supply because of an improvement in technology causes the supply curve to shift to the RIGHT. Notice that the new supply curve (S2) causes a new lower price. S1 S2