Market+Equilibrium

Market Equilibrium

The demands of any market can be expressed on a chart that expresses given quantities supplied and demanded at different prices. Two lines are drawn, one for supply and one for demand. [|Demand]is generally downsloping and suplly is generally tilted upwards. The point where the two lines intersect, also where producers will supply the exact amount the consumers will buy, is called market equilibrium. Producing at market equilibrium is important because any higher and no one will buy it, and any lower and there will be people who will pay more, creating insentive to produce.



When either the supply or demand scheduales change, the lines shift, then we will need to create an entirely new chart, equilibrium has also changed. If demand goes up, people will buy more of a product at higher prices, the converse is also true. If it becomes easier to produce something, then producers will be willing to sell more of the product at every previous price. The Market equilibrium can always be determined by redrawing the lines.



Sample Question: If demand increases what happens to market equilibrium? a. More will be sold at a higher price b. Less will be sold at a higher price c. Price will decrease.

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Useful links: http://en.wikipedia.org/wiki/Supply_and_demand http://en.wikipedia.org/wiki/Market_equilibrium

Answer to sample Question: (a)