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3-5Equilibrium - Equilibrium The Interaction of Supply and...

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Equilibrium
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The Interaction of Supply and Demand The English historian Thomas Carlyle once said: “Teach any parrot the words supply and demand and you’ve got an economist.”
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Equilibrium Equilibrium is a concept in which opposing dynamic forces cancel each other out.
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Equilibrium In a free market, the forces of supply and demand interact to determine equilibrium quantity and equilibrium price.
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Equilibrium Equilibrium price – the price toward which the invisible hand drives the market. Equilibrium quantity – the amount bought and sold at the equilibrium price.
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What Equilibrium Isn’t Equilibrium isn’t a state of the world, it is a characteristic of a model. Equilibrium isn’t inherently good or bad, it is simply a state in which dynamic pressures offset each other.
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What Equilibrium Isn’t When the market is not in equilibrium, you get either excess supply or excess demand, and a tendency for price to change.
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Excess Supply Excess supply – a surplus, the quantity supplied is greater than quantity demanded Prices tend to fall.
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