Market Equilibrium

Market equilibrium occurs at a price where quantity demanded equals quantity supplied. The market has no shortages or surpluses.

Equilibrium price — price where Qd = Qs• Equilibrium quantity — quantity where Qd = Qs• Surplus (excess supply) — Qs exceeds Qd• Shortage (excess demand) — Qd exceeds Qs• Price mechanism — rationing — shortage raises price, surplus lowers it

Equilibrium, surplus & shortage

Move the price

In equilibrium — Qd = Qs.

Consumer surplus Producer surplus Demand Supply
£21
Price £21
Qty demanded 48
Qty supplied 48

Consumer & producer surplus

Shift the curves

Equilibrium at £21 and 48 units.

Consumer surplus Producer surplus Demand Supply
0
0
Eq. price £21
Eq. quantity 48
Consumer surplus £576
Producer surplus £384

Rationing A shortage pushes price up; a surplus pushes price down — the price mechanism rations the good until Qd = Qs.