market equilibrium

  • Created by: meryemb12
  • Created on: 06-03-20 17:38

equilibrium price and disequilibrium

Equilibrium price

  • the only price where the amount consumers want is equal to the amount producers want to sell
  • if the market is at equilibrium -there is no need to move away
  • supply and demand dictate the equilibrium quantity and price in a free market


  • when the market is not at a stable price and quantity
  • if the market is not at equilibrium , economic pressure arises to move the market towards a stable price and quantity
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excess supply and demand

Excess supply and demand

  • occur at disequilibrium
  • the higher price makes it more profitable for petrol producers -output expands
  • the difference between the quantity demanded and quantity supplied -is excess supply 
  • when quantity demanded exceeds quantity supplied =excess demand

The pressure to reach equilibrium

  • the market price is unstable when there is excess demand /supply
  • excess supply will force producers to cut the price because of it. is better to sell at a lower price than not at all 
  • excess demand will signal producers that they can generate more profit by raising the price 
  • therefore excess demand and supply can lead to price change 
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Determined by the forces of demand and supply in an economy

Model of equilibrium assumes perfect competition and ceteris paribus (everything else equal) as well as independence between supply and demand.

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interrelationship between markets

Joint demand 

  • two goods are in joint demand if they are complementary
  • an increase in the price of one good will cause a fall in the quantity demanded of the other

Composite demand 

  • good that have a number of uses in the production process

Derived demand 

  • the demand as a consequence of the demand for another good 

Joint supply

  • an increase in the supply of a good increases the supply of a related good 
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