Putting it all together MARKET EQUILIBRIUM Putting it all together

Market Equilibrium A market brings together those who are willing and able to supply the good (SUPPLY) and those who are willing and able to purchase the good (DEMAND). In a competitive market, where there are many buyers and sellers, the price of the good serves as a rationing (regulating) mechanism. 

MARKET EQUILIBRIUM

CONSUMER SURPLUS

So what can we say about this?

PRODUCER SURPLUS

DISEQUILIBRIUM

DISEQUILIBRIUM

EQUILIBRIUM

SHIFTS IN EQUILIBRIUM DEMAND

SHIFTS IN EQUILIBRIUM DEMAND

SHIFTS IN EQUILIBRIUM SUPPLY

SHIFTS IN EQUILIBRIUM SUPPLY

LET’s TRY THESE !!!

CALCULATING EQUILIBRIUM SOLVE P and Q

CALCULATING EQUILIBRIUM

SOLUTION [QUANTITY]

SOLUTION [PRICE]

SHOWN GRAPHICALLY

PRICE FLOORS AND PRICE CEILINGS Price floors  benefit the producers A price floor sets a minimum price for which the good may be sold.  To be effective, a price floor would need to be above the market equilibrium. 

PRICE FLOORS

Price ceilings benefit the consumer set a maximum price for which the product may be sold. To be effective, the ceiling price must be below the market equilibrium.

PRICE CEILING

EQUILIBRIUM In a competitive market, the economic surplus which is the combined area of the consumer and producer surplus is maximized.