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Understanding Market Equilibrium and Price Dynamics in Supply & Demand

Learn how equilibrium price is determined when supply equals demand, avoiding surplus or shortage. Discover effects of price fluctuations based on demand and supply changes in natural market conditions.

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Understanding Market Equilibrium and Price Dynamics in Supply & Demand

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  1. Equilibrium

  2. Equilibrium • Price at which the Qs equals the Qd • There is no Surplus or Shortage • Natural Market Price

  3. S Price $3.50 D 12 Million Gals Quantity

  4. When prices are “too high”… Surplus Price S $4.75 D 7 million gals 18 Million gals =Qd =Qs Quantity

  5. When prices are “too low”… S Price $1.89 Shortage D 5 million gals 18 million gals Quantity =Qd =Qs

  6. S Price D2 D Quantity Increase in Demand

  7. S Price D D2 Quantity Decrease in Demand

  8. Increase in Supply S Price S2 D Quantity

  9. Decrease in Supply S2 S Price D Quantity

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