Market equilibrium

• determined by the intersection of the market demand curve and market supply curve

Equilibrium price/ quantity

• quantity supplied = quantity demanded
• market clearing price

Total revenue

• amount of money generated from the sale of output
• Total revenue = Price x Quantity
• Total revenue (sellers) = Total expenditure (buyers)

Excess demand

• Price charged < equilibrium price → Quantity supplied < Quantity demanded
• Excess demand (shortage) = AB
• Price under pressure to rise

Reduce excess demand:

1. Market
   • Excess demand → ↑ price → ↓ Quantity demanded ↑ Quantity supplied
2. Increased market supply
3. Decreased market demand

Excess supply

• Price charged > equilibrium price → Quantity supplied > Quantity demanded
• Excess supply = AB
• Price under pressure to fall

Reduce excess supply:

1. Market forces

   Excess supply → ↓ Price → ↑ Quantity demanded ↓ Quantity supplied

2. Decreased market supply

3. Increase market demand

Effects of shifts in supply and demand on market equilibrium