1. Equilibrium

2. Definition
Equilibrium: price and quantity where the supply of a good and the demand for that good are equal
(AKA Market Clearing Price)
Example: Ms. Yeomans wants to buy 1 Starbucks coffee at $4.75 and Starbucks wants to sell her 1 coffee at $4.75

3. P S P*
Equilibrium D Q Q*

4. Changes to Equilibrium
If demand or supply change, equilibrium changes
If Demand increases, equilibrium price and quantity increase
If Demand decreases, equilibrium price and quantity decrease
If Supply increases, equilibrium price decreases and quantity increases
If Supply increases, equilibrium price increases and quantity decreases

5. Demand Increase P S P*
Equilibrium D2 D Q Q*

6. Demand Decrease P S P*
Equilibrium D D2 Q Q*

7. Supply Increase P S S2 P*
Equilibrium D Q Q*

8. Supply Decrease S2 P S P*
Equilibrium D Q Q*