Economics Equilibrium

1. EQUILIBRIUM

2. LET’S CREATE
A MARKET
IN OUR CLASSROOM
You need a pencil and a
piece of scrap paper.

3. THE PRODUCT:
“Econ Class Snack Pack”
Glass of
Coca-Cola
Mini Brownie
Fruit Shish-Kabob

4. STEP ONE:
How much money
are you willing to pay
for an “Econ Class Snack Pack”?
!
Write the amount on a
slip of paper.

5. STEP TWO:
I will create a demand schedule on
the board based on the prices you
have all just proposed.
Price Quantity Demanded
? ?
? ?
? ?

6. STEP THREE:
Think like the supplier.
What price do you think you
should sell this product at?
!
Your goal: sell at the highest price
and the highest quantity you
possibly can.

7. HINTS:
You can sell at a very high price and
produce a large quantity…but how many
people will be willing to buy the product?
Will you have products that go unsold?
You can sell at the lowest price and try to
reach more customers, but remember
that it cost you something to produce the
product. You need to cover the costs of
your own production.

8. Qs
In an ideal world, sellers
P
want to sell large quantities
at high prices so they make
large profits.
!
But, what if
the demand is lower than
the quantity they want to
supply?

9. Qs
P
Qd
In an ideal world, sellers
want to sell large quantities
at high prices so they make
large profits.
!
But, what if
the demand is lower than
the quantity they want to
supply?

10. Qd
P
If I am a seller, I want to sell
at a price where:
!
• People are demanding as
much as I choose to
produce. Not enough
demand means I have
products that go unsold.
!
• There is not too much
demand, either. Too much
demand means I could be
raising my prices.
!
• The price is high enough
to cover the cost of my
production so I make a
profit.
Qs

11. EQUILIBRIUM PRICE:
The price where quantity
demanded (Qd) is equal to
quantity supplied (Qs).
Q
P
We indicate
equilibrium
price with “P”
and a “star”

12. EQUILIBRIUM QUANTITY:
The quantity (Q) at which quantity
demanded (Qd) and quantity supplied
(Qs) are equal at a certain price (P).
Q
P
We indicate
equilibrium
quantity with
“Q” and a
“star”

13. EQUILIBRIUM STATE:
The combination of price (P) and
quantity (Q) where there is no
economic pressure from extra demand
or extra supply.
Q
P

14. EQUILIBRIUM STATE…
… is the state in which BOTH buyers
and sellers are receiving a desirable
outcome from the sale.
Q
P

15. DISEQUILIBRIUM STATE:
When the market is outside of
equilibrium. In other words, when there
is a surplus or shortage of goods.
Qs
P
P
Qd Qs
Qd

16. SURPLUS:
When at a given price, quantity
supplied is greater than quantity
demanded.
Qs > Qd
We have
20 phones
for sale at
100$ each!
Only 10 of
us are willing
to pay that
price for a
phone.
Sellers Buyers

17. SURPLUS:
When at a given price, quantity
supplied is greater than quantity
demanded.
Who does a surplus
hurt the most?
Benefit the most?
We have
20 phones
for sale at
100$ each!
Only 10 of
us are willing
to pay that
price for a
phone.
Sellers Buyers

18. SURPLUS:
Qs
P
Qd
Notice how Qs
is at a higher
quantity than
Qd. This is a
visualization of
a surplus.
At a given price,
draw a straight
horizontal line
that intersects
the demand curve
and the supply
Qs > Qd
curve.

19. SHORTAGE:
When at a given price, quantity
demanded is greater than quantity
supplied.
Qs < Qd
We have
20 phones
for sale at
100$ each!
There are
30 of us
willing to
buy a phone
at that price!
Sellers Buyers

20. SHORTAGE:
When at a given price, quantity
demanded is greater than quantity
supplied. We have
20 phones
for sale at
100$ each!
There are
30 of us
willing to
buy a phone
at that price!
Who does a shortage
hurt the most?
Benefit the most?
Sellers Buyers

21. SHORTAGE:
Now, Qd is
higher than Qs.
This indicates
a shortage
of goods.
Qs < Qd
Our straight line
now intersects
supply before
it intersects
demand.
Qd
P
Qs

22. EQUILIBRIUM STATE…
… is the state in which BOTH buyers
and sellers are receiving a desirable
outcome from the sale.
Q
P

23. DISEQUILIBRIUM STATE:
When there is a surplus or a shortage, either
buyers or sellers are at a disadvantage.
Surplus - buyers benefit most Shortage - sellers benefit most
Qs
P
P
Qd Qs
Qd

24. DISEQUILIBRIUM STATE:
In other words, in a surplus, sellers are not
maximizing their profits, and in a shortage,
buyers are not maximizing their utility.
Surplus - buyers benefit most Shortage - sellers benefit most
Qs
P
P
Qd Qs
Qd