Market equilibrium
Dec 17, 2015
Market equilibrium
Market equilibrium: when quantity demanded = quantity supplied.
Quantity demanded > quantity supplied → excess demand (shortage) Quantity supplied > quantity demanded → excess supply (surplus)
Quantity demanded = quantity supplied → equilibrium
At equilibrium there is no tendency for things to change until any factor affects demand or supply.
Quantity demanded > quantity supplied at all prices lower than R5 per kg (excess demand)
Quantity supplied > quantity demanded at all prices higher than R5 per kg (excess supply)
Consumer and producer surplus
With the equilibrium price it can be seen that…some consumers are paying less than the maximum they are willing to pay
some suppliers are receiving more than the minimum they were willing to accept
Consumer surplus Consumer surplus: the difference between what consumers actually pay and the value that they receive, indicated by the maximum amount they are willing to pay.
Producer surplus Producer surplus: the difference between what producers actually receive and the amount that they are willing to sell their products at.