Market equilibrium and changes in equilibrium

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    Market equilibrium and changes in equilibrium

    Market equilibrium: where the quantity supplied equals the quantity demanded

     

    Excess supply: more is being supplied than demanded at P1, in order to eliminate the surplus, producer must lower the price

    Excess demand: more is being demanded than supplied at P2, in order to eliminate the surplus, producer must raise

    the price

    When there is a change in determinants of demand/supply other than the price of the product, it would lead to a shift of a curve.

    When demand shifts to D1, Qe is the quantity supplied, but Q2 is the quantity demanded, there is excess demand.

    The price will rise until P1, where the new equilibrium quantity, is both demanded and supplied.