Market Equilibrium

A market is said to be in equilibrium where the supply and demand curves intersect. At this point, for a given price, the quantity supplied is equal to the quantity demanded and the market is most efficient.

Figure 3.7

Figure 3.7 above shows a market in Equilibrium.

Shifts in the demand and supply curves alter market equilibrium. On the demand side, any factor which makes the demand curve shift to the right (without affecting the supply curve) will increase the equilibrium price and quantity.

Figure 3.8

Figure 3.8 above shows the effects of a rigthward shift of the demand curve on the market equilibrium.

Factors which shift the demand curve to the left (without affecting the supply curve) will decrease the equilibrium price and quantity.

Figure 3.9

Figure 3.9 above shows the effects of a leftward shift of the demand curve on market equilibrium.

As it relates to quantity supplied, any factor that shifts the supply curve to the right (without affecting the demand curve) will lower the equilibrium price and increase the equilibrium quantity.

Figure 3.10

Figure 3.10 above shows the effects of a rightward shift of the supply curve on market equilibrium.

Factors which shift the supply curve to the left (without affecting the demand curve) will increase the equilibrium price and decrease the equilibrium quantity.

Figure 3.11

Figure 3.11 above shows the effects of a leftward shift of the supply curve on market equilibrium.

Market failure occurs when the market does not provide the most efficient allocation of resources in the economy.

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