Quarter 3: Module 9: Market Equilibrium

Summary

This lesson introduces market equilibrium, where demand equals supply, resulting in price stability. It explains market shortage, occurring when demand exceeds supply at a lower price, and market surplus, when supply exceeds demand at a higher price. Using graphs, the lesson illustrates how equilibrium price and quantity are determined and how changes in demand or supply affect the market. Increases in demand raise both price and quantity, while increases in supply lower the price and raise the quantity. The lesson concludes with activities and reflection questions to reinforce the concepts of market equilibrium, shortage, and surplus.

Takeaways

• 😀 Market equilibrium occurs when demand equals supply, resulting in price stability and balance between what consumers want to buy and sellers want to sell.
• 😀 A market shortage happens when demand exceeds supply, causing consumers to want more than sellers can provide at a given price.
• 😀 A market surplus occurs when supply exceeds demand, leading to an excess of products that consumers are not willing to buy at the current price.
• 😀 The equilibrium price is the price at which the quantity demanded equals the quantity supplied, ensuring a balanced market.
• 😀 The equilibrium quantity is the number of units bought and sold at the equilibrium price.
• 😀 A shortage occurs when the price is below the equilibrium price, leading to higher demand than what is available at that price.
• 😀 A surplus occurs when the price is above the equilibrium price, leading to an excess of supply over the quantity consumers are willing to buy.
• 😀 Changes in demand (e.g., more buyers) shift the demand curve and can raise the equilibrium price and quantity.
• 😀 Changes in supply (e.g., technological improvements) shift the supply curve and can lower the equilibrium price while increasing the quantity.
• 😀 A simultaneous increase in both demand and supply increases equilibrium quantity, but the effect on equilibrium price depends on the magnitude of each change.
• 😀 If both demand and supply decrease, equilibrium quantity will decrease, and the direction of the price change depends on the relative size of the shifts in demand and supply.

Q & A

What is market equilibrium?

Market equilibrium occurs when the quantity demanded equals the quantity supplied at a specific price, known as the equilibrium price. At this point, there is no shortage or surplus in the market.

What happens when the quantity demanded exceeds the quantity supplied?

When the quantity demanded exceeds the quantity supplied, a market shortage occurs. This situation arises when the price is set below the equilibrium price, leading to excess demand.

How does a surplus occur in the market?

A surplus occurs when the quantity supplied exceeds the quantity demanded. This typically happens when the price is above the equilibrium price, causing excess supply.

What is the effect of a price increase on market equilibrium?

An increase in price typically reduces the quantity demanded while encouraging suppliers to produce more. This can create a surplus if the price rises above the equilibrium price, or it can raise the equilibrium price if demand increases significantly.

How is the equilibrium price determined?

The equilibrium price is determined at the point where the quantity demanded equals the quantity supplied. This price clears the market, meaning all goods are sold without a surplus or shortage.

What causes a market shortage?

A market shortage is caused when the price is set below the equilibrium price, leading consumers to want to purchase more than sellers are willing to supply. The result is an excess of demand.

What happens when the price of a product increases, but demand decreases?

When the price increases and demand decreases, it can lead to a surplus. Consumers will buy less, while suppliers may still be willing to produce more, resulting in an excess supply.

What is the role of supply shifts in market equilibrium?

A shift in the supply curve, such as an increase in supply due to improved technology, can lower the equilibrium price and increase the equilibrium quantity. Conversely, a decrease in supply, like fewer sellers, can raise the equilibrium price and reduce the equilibrium quantity.

How does an increase in demand affect the market?

An increase in demand, such as when more buyers enter the market, shifts the demand curve to the right. This raises both the equilibrium price and the equilibrium quantity, as sellers can sell more at a higher price.

What is the relationship between equilibrium price and quantity?

The equilibrium price is the price at which the quantity demanded equals the quantity supplied. The equilibrium quantity is the amount of the good that is bought and sold at that price.