Market equilibrium

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  • Market Equilibrium
    • Market price is set by the interaction of supply and demand. Equilibrium price is the price at which the quantity demanded by consumers and the quantity that firms are willing to supply of a good or service are the same
    • Shifts in demand
      • A inward shift in demand causes a contraction along the shift curve and a fall in the equilibrium price and quantity.
        • This menas that firms will sell less at a lower price and thereefore reciee less total revenue
      • Equilibrium price represents a trade off for buyers and sellers- higher prices are good for the producer but they make them more expensive for the buyer
    • Shifts in supply
      • if there is an inward shift of supply together we see a fall in demand as both factors lead to a fall in quantity traded
      • If there is a rise in demand but a much bigger increase in supply then the net result is a fall in equilibrium price and an increase in the equilibrium quantity traded in the market
    • Summary of changes in the market equilibrium price
      • demanded increases
        • you get a higher equilibrium price and higher quantity
        • demanded decreases
          • you get a lower equilibrium price and lower quantity
      • supply increases
        • you get a lower equilibrium price but a higher quantity
        • supply decreases
          • you get a higher equilibrium price but a lower quantity
    • independent variables for demand are competition, interest rates and advertising
      • independent variables for supply are weather and new technology


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