equilibrium
DESCRIPTION
Economics EquilibriumTRANSCRIPT
EQUILIBRIUM
LET’S CREATE A MARKET
IN OUR CLASSROOMYou need a pencil and a
piece of scrap paper.
THE PRODUCT:“Econ Class Snack Pack”
Glass of Coca-Cola
Mini Brownie
Fruit Shish-Kabob
STEP ONE:How much money
are you willing to pay for an “Econ Class Snack Pack”?
!
Write the amount on a slip of paper.
STEP TWO:I will create a demand schedule on the board based on the prices you
have all just proposed.Price Quantity Demanded
? ?
? ?
? ?
STEP THREE:Think like the supplier.
What price do you think you should sell this product at?
!
Your goal: sell at the highest price and the highest quantity you
possibly can.
HINTS:You can sell at a very high price and
produce a large quantity…but how many people will be willing to buy the product? Will you have products that go unsold?
You can sell at the lowest price and try to reach more customers, but remember
that it cost you something to produce the product. You need to cover the costs of
your own production.
Qs
PIn an ideal world, sellers want to sell large quantities at high prices so they make
large profits. !
But, what if the demand is lower than the quantity they want to
supply?
Qs
P
Qd
In an ideal world, sellers want to sell large quantities at high prices so they make
large profits. !
But, what if the demand is lower than the quantity they want to
supply?
Qd
P
If I am a seller, I want to sell at a price where:
!• People are demanding as
much as I choose to produce. Not enough demand means I have
products that go unsold. !
• There is not too much demand, either. Too much demand means I could be
raising my prices. !
• The price is high enough to cover the cost of my production so I make a
profit.
Qs
EQUILIBRIUM PRICE:The price where quantity
demanded (Qd) is equal to quantity supplied (Qs).
Q
P
We indicate equilibrium
price with “P” and a “star”
EQUILIBRIUM QUANTITY:The quantity (Q) at which quantity
demanded (Qd) and quantity supplied (Qs) are equal at a certain price (P).
Q
P
We indicate equilibrium
quantity with “Q” and a
“star”
EQUILIBRIUM STATE:The combination of price (P) and quantity (Q) where there is no
economic pressure from extra demand or extra supply.
Q
P
EQUILIBRIUM STATE…… is the state in which BOTH buyers and sellers are receiving a desirable
outcome from the sale.
Q
P
DISEQUILIBRIUM STATE:When the market is outside of
equilibrium. In other words, when there is a surplus or shortage of goods.
Qs
P
Qd Qd
P
Qs
SURPLUS:When at a given price, quantity supplied is greater than quantity
demanded.
Qs > QdWe have
20 phones for sale at 100$ each!
Only 10 of us are willing to pay that price for a
phone.
Sellers Buyers
SURPLUS:When at a given price, quantity supplied is greater than quantity
demanded.Who does a surplus
hurt the most? Benefit the most?
We have 20 phones for sale at 100$ each!
Only 10 of us are willing to pay that price for a
phone.
Sellers Buyers
SURPLUS:
Qs > Qd
Qs
P
Qd
Notice how Qs is at a higher quantity than Qd. This is a
visualization of a surplus.
At a given price, draw a straight horizontal line that intersects
the demand curve and the supply
curve.
SHORTAGE:When at a given price, quantity
demanded is greater than quantity supplied.
Qs < QdWe have
20 phones for sale at 100$ each!
There are 30 of us willing to
buy a phone at that price!
Sellers Buyers
SHORTAGE:When at a given price, quantity
demanded is greater than quantity supplied.
We have 20 phones for sale at 100$ each!
There are 30 of us willing to
buy a phone at that price!
Sellers Buyers
Who does a shortage hurt the most?
Benefit the most?
SHORTAGE:
Qs < Qd
Now, Qd is higher than Qs. This indicates a shortage of goods.
Our straight line now intersects supply before it intersects
demand.
Qd
P
Qs
EQUILIBRIUM STATE…… is the state in which BOTH buyers and sellers are receiving a desirable
outcome from the sale.
Q
P
DISEQUILIBRIUM STATE:When there is a surplus or a shortage, either
buyers or sellers are at a disadvantage.
Qs
P
Qd Qd
P
Qs
Surplus - buyers benefit most Shortage - sellers benefit most
DISEQUILIBRIUM STATE:In other words, in a surplus, sellers are not maximizing their profits, and in a shortage,
buyers are not maximizing their utility.
Qs
P
Qd Qd
P
Qs
Surplus - buyers benefit most Shortage - sellers benefit most