Lecture 3

A market is the institution through which buyers and sellers

interact/ engage in exchange of goods and services.
Market equilibrium is when the market is at a state of balance,
which means at one specific market price, quantity supplied equals
quantity demanded and the buyers plan matches the sellers plan.
Thersfore, there is no tendency for the price to increase or decrease.
Shortage (excess in demand) happens when consumers are willing
to buy more than producers are willing to sell. This occurs when
market price is lower than equilibrium price. Due to shortage, price
will increase. As a result, Qd decreases and Qs increases until the
original equilibrium is established. Shortage is then eliminated.
Surplus (excess in supply) happens when producers are willing to
produce more than consumers are willing to buy. This occurs when
market price is higher than equilibrium price. Price will the start to
fall due to excess supply. As price decreases, Qd increases and Qs
decreases until the original equilibrium is established. SURPLUS will
be eliminated.
*Equilibrium price and quantity will ONLY change when there is a
shift in the demand/supply curve (left or right). Otherwise, it will not
change.
Price ceiling (max price) is a regulation (imposed by the
government) that makes it illegal to charge a price higher than a
specified level, allowing consumers to purchase basic items (ie.
sugar, chicken) that were sold at a higher market price.
-price ceiling is set below the equilibrium price
-can cause shortage
Price floor (minimum price) is a regulation (imposed by the
government) that makes it illegal to trade at a price lower than a
specified level.
-set above equilibrium price
-to increase the price certain goods that are believed to be sold in
an unfair market with price that is too low (e,g, agricultural produce)
- can cause surplus