APPLIED ECONOMICS: LESSON 2

CALCULATING MARKET EQUILIBRIUM

MARKET EQUILIBRIUM

➢ The point where the quantity of a product supplied

is equal to the quantity demanded.
➢ It's important in understanding the dynamics of
markets and pricing.
Definition of Market Equilibrium
Balance in the Market
• Market equilibrium describes a
balanced state where demand and
supply are in harmony, preventing
surpluses or shortages.
Equalized Forces
• It occurs when the price at which the
quantity of a product demanded by
buyers equals the quantity supplied by
producers.
Demand and Supply in Market Equilibrium
Demand
Demand Curve - Shows the quantity demanded at
different prices.
Supply Curve - Shows the quantity supplied at
different prices.
Equilibrium Price - The price where quantity
demanded equals quantity supplied
SURPLUS AND SHORTAGE IN MARKET EQUILIBRIUM
Surplus - occurs when the quantity supplied exceeds
the quantity demanded, leading to a decrease in prices.
Shortage - occurs when the quantity demanded
exceeds the quantity supplied, leading to an increase in
prices.
WAYS TO DETERMINE MARKET EQUILIBRIUM
1. Using Demand and Supply Schedules of Ice
Candy

→ Refers to the quantity of a product that

people are willing to buy at a given
price.
Market Equilibrium: Qs=Qd
Supply
2. Demand and Supply Curves
→ Refers to the quantity of a product that
producers are willing to produce and
sell at a given price.
Equilibrium Point

→ Occurs where the demand and supply

curves intersect, indicating a balanced
market 3. Using Equations (Demand and Supply
Functions)
FACTORS AFFECTING MARKET EQUILIBRIUM NOTE: Learn to derive demand and supply
1. Consumer Preferences functions if price function is given.
• Changes in consumer tastes can shift
demand, impacting market
equilibrium.
2. Production Technology
• Innovations in production can affect
the supply side of the market
equilibrium equation.
3. Government Policies
Taxes, subsidies, and regulations can influence
both demand and supply in the market.

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 APPLIED ECONOMICS: LESSON 2
Examples of Market Equilibrium
1. Real estate markets often reach equilibrium,
where the number of homes for sale matches
potential buyers.
2. Stock exchanges exhibit equilibrium when the
price of a stock matches what buyers are
willing to pay.
3. Labor markets achieve equilibrium when the
number of job vacancies balances with the
number of job seekers.
Conclusion and Key Takeaways
1. Dynamics
Understanding market equilibrium is crucial in
comprehending the dynamics of supply, demand,
and pricing in various markets.
2. Impact
Changes in market equilibrium can have
widespread implications for consumers,
producers, and the economy as a whole

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