Market Equilibrium, Disequilibrium, and Changes in Equilibrium
Jackson Hernandez
8 min read
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Study Guide Overview
This study guide covers market equilibrium (where quantity supplied equals quantity demanded), market disequilibrium (surpluses and shortages), and changes in market equilibrium due to shifts in supply and demand. It explains the determinants of supply and demand, using mnemonics like I-N-S-E-C-T and R-O-T-T-E-N. The guide also provides practice questions and exam tips focusing on graphing and analyzing these shifts, including real-world applications.
#AP Macroeconomics: Market Equilibrium - Your Ultimate Guide 🚀
Hey there, future AP Macro superstar! Let's get you prepped and confident for your exam. This guide is designed to make everything click, just like a conversation with a smart friend. Let's dive in!
# Market Equilibrium: The Sweet Spot 🎯
Market equilibrium is where the magic happens! It's the point where quantity supplied equals quantity demanded. Think of it as the perfect balance where everyone's happy. This happens because of voluntary exchange, where consumers and firms both benefit, maximizing utility and profits. When a market is in equilibrium, it's also allocatively efficient, meaning resources are used in the best way possible, and consumer and producer surplus are maximized.
Equilibrium is not just a point on a graph; it's a state of balance where the market is most efficient. Remember, it's the intersection of supply and demand!
#Market Disequilibrium: When Things Get Wonky 🥴
Prices don't always stay at equilibrium; they fluctuate, causing market disequilibrium. This happens when there's either a surplus or a shortage.
#Market Surplus: Too Much Stuff 📦
When the price is too high, firms want to supply more, but consumers aren't willing to buy as much. This leads to a surplus, where quantity supplied is greater than quantity demanded.
#Market Shortage: Not Enough Stuff 😩
When the price is too low, consumers want to buy more, but firms aren't willing to supply as much. This creates a shortage, where quantity demanded is greater than quantity supplied.
Example:
- Price decreases from P1 to P3:
- Quantity demanded increases (150 to 200 units).
- Quantity supplied decreases (150 to 100 units).
- Shortage of 100 units (200 demanded - 100 supplied).
- Price increases from P1 to P2:
- Quantity demanded...
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