The document discusses market equilibrium and how supply and demand interact to determine price and quantity in competitive markets. It defines equilibrium price as the price where the quantity demanded is equal to the quantity supplied, resulting in no shortages or surpluses. Disequilibrium occurs when demand and supply are not equal at the existing price, resulting in either a shortage or surplus. The document provides examples of how prices and quantities adjust to changes in demand or supply through shifts in the curves to restore equilibrium. Tasks are included applying these concepts to real world market situations.

1. AS Unit F581:AS Unit F581:
Markets in actionMarkets in action
Competitive marketsCompetitive markets
and how they workand how they work

2. Market equilibrium:Market equilibrium:
the interaction ofthe interaction of
demand and supplydemand and supply

4. DefinitionDefinition
Equilibrium
(market clearing) price
the price where demand and supply
are equal
Equilibrium
(market clearing) price
the price where demand and supply
are equal
Disequilibrium
a situation where demand and
supply are not equal and there are
shortages or surpluses at the
existing market price
Disequilibrium
a situation where demand and
supply are not equal and there are
shortages or surpluses at the
existing market price

5. Equilibrium price & quantityEquilibrium price & quantity
Price
Quantity demanded
and supplied
demand
supply
Pe
Qe
The price where the
amount that consumers
want to buy is equal to
the amount that
producers want to sell is
called the equilibrium or
market clearing price.
Demand and supply are
equal at the existing
market price so that
there are no shortages
or surpluses

6. Disequilibrium: excess supplyDisequilibrium: excess supply
Price
Quantity demanded
and supplied
demand
supply
Pe
Qe
If the market price is
higher than the
equilibrium price, the
amount that firms are
willing and able to supply
to the market will
exceed the amount that
consumers are willing
and able to buy. There
will be a SURPLUS.
This surplus will cause
the market price to fall
until it reaches the
equilibrium price
Ph
excess supply

7. Task 1Task 1
 Read the article taken from the biz/ed site
about the market for Wii consoles in December
2007
 What would you have expected to have
happened to the price of Wii consoles in the
run up to Christmas? Explain your answer. How
would you have expected Nintendo to respond
during early 2008?

8. Disequilibrium: excess demandDisequilibrium: excess demand
Price
Quantity demanded
and supplied
demand
supply
Pe
Qe
If the market price is
lower than the
equilibrium price, the
amount that firms are
willing and able to supply
to the market will be
less that the amount
that consumers are
willing and able to buy.
There will be a
SHORTAGE.
This shortage will cause
the market price to rise
until it reaches the
equilibrium price
PL
excess demand

9. Task 2Task 2
 Read the article taken from the biz/ed site
about the Led Zeppelin concert in November
2007
 How would you represent the supply of tickets
in the situation described?

10. Effect of a rise in demandEffect of a rise in demand
Price
Quantity
demanded and
supplied
D1
S
P1
Q1
D2
P2
Q2
A rise in demand
shifts the demand
curve to the right.
After a rise in
demand there will be
a shortage at the old
price.
This shortage will
drive the price up to a
new market clearing
price.
The quantity
demanded and
supplied will both rise.

11. Task 3Task 3
 Read the article on the UK housing market
which appeared on the BBC website
(www.bbc.co.uk) on 16 September 2008.
 Explain what has happened to UK housing
demand since autumn 2007.

12. Effect of a fall in demandEffect of a fall in demand
Price
Quantity
demanded and
supplied
D2
S1
P2
Q2
D1
P1
Q1
A fall in demand
shifts the demand
curve to the left.
After a fall in demand
there will be a surplus
at the old price.
This surplus will drive
the price down to a
new market clearing
price.
The quantity
demanded and
supplied will both fall.

13. Task 4Task 4
 Read the article on the price of brocolli which
appeared on the BBC website (www.bbc.co.uk)
on 16 September 2008.
 Explain why, despite an obvious increase in
demand, the price of broccoli has fallen since
2007.

14. Tasks 5 and 6Tasks 5 and 6
 Fill in the blanks in the sentences on the work
sheet for a situation where there is a rise in
supply and where there is a reduction in supply.
 Complete the diagrams by adding the
appropriate changes.

15. Effect of a rise in supplyEffect of a rise in supply
After a rise in supply there will be a
surplus at the old price.
This surplus will drive the price down to a
new market clearing price.
The quantity demanded and supplied will
both rise.

16. Effect of a fall in supplyEffect of a fall in supply
After a fall in supply there will be a
shortage at the old price.
This shortage will drive the price up to a
new market clearing price.
The quantity demanded and supplied will
both fall.

17. Task 7Task 7
Complete the vanilla
pods task on the
worksheet and hand
in at the end of the
lesson for
assessment