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Market Equilibrium

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Michelle Spreadbury

on 11 September 2015

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Transcript of Market Equilibrium

The Marriage of Supply and Demand
Equilibrium: A Love Story
Market Equilibrium
This is a minimum legal price established above equilibrium price.

Price Floors
For example: employees are the suppliers of labor and the company is the consumer. When the minimum wage is set above the equilibrium market price for unskilled labor, unemployment is created.
A (usually) temporary imbalance between quantity supplied and quantity demanded in a market, which occurs when a price is above or below the market clearing level.
Price Ceilings and Floors
Shifts in supply and demand will change the positions of equilibrium. With a constant supply, an increase in demand will cause an increase in the equilibrium price and quantity. The same is true in reverse. An increase in disposable income also cause a change.
Changes In Equilibrium
Market Equilibrium
By: JaRon Johnson, Shane Bednarek, Alex Bozek, Mairead DeWitt, Rachel Fimbianti, Luke La Telle, Jake Meline, Michelle Spreadbury

"Opposing forces are in balance"
Market equilibrium occurs when the quantity demanded equals the quantity supplied. When buyers' and sellers' plans are in balance

Price Ceilings
Disequilibrium causes market inefficiencies.

Disequilibrium results if opposing forces are not in balance. The opposing forces that are out of balance are supply and demand. The result of these two forces being out of balance are either a shortage or surplus, which induces a change of price.
Government-induced Changes
Price ceiling- prohibits prices to rise above a certain level as in rent (City controlled prices or rents for apartments) or as in the establishment a ceiling or interest rates for mortgage loan. Price ceilings are meant to set a price above equilibrium and one below.
Equilibrium Price is quantity demanded equals the quantity supplied.
surplus- the quantity supplied is greater than the quantity demanded- buyers don't want as much as they are given
shortage- the quantity demanded is greater than the quantity supplied- buyers want more then for sale
prices increases can reduce the shortage and start a bidding war until equilibrium is restored
The Law of Market Forces
Equilibrium quantity is the quantity bought and sold at equilibrium price
Equilibrium Characteristics
1. There is no tendency for change- supply and demand stay the same of constant
2. The amounts demanded equal the amounts supplied- supply and demand
3. There is no surplus or shortage
When there is a surplus, the price falls
Where there is a shortage, the price rises
Example: If candy bars are selling for $0.50 and the equilibrium price of candy bars is $1.00, the expected result would be a shortage of candy bars and the market price for them would increase.


Equilibrium Basics
Equilibrium Basics
Price Ceilings and Price Floors
The new equilibrium is found when the new supply and demand are balanced.

Example: Nicole makes hats. Her point of equilibrium is 15 hats. When the demand for her hats goes up, her point of equilibrium changes. Since the demand for her hats increases, Nicole has to produce more hats, thus shifting her point of equilibrium.
What is Equilibrium
The state in a market when the amount supplied is equal to the amount demanded
The price has to be low enough that people can afford to buy it- yet high enough to keep the demand and production supported
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