Lecture Notes: Market Equilibrium

Introduction

• Presenter: Scott Wolla
• Topic: Market Equilibrium in a Market Economy
• Importance: Determines how society’s scarce resources are used based on consumer and producer choices.

Basics of Supply and Demand

Law of Demand

• Quantity Demanded: Amount of a good buyers are willing and able to purchase at a particular price.
• Factors Affecting Demand: Primarily price.
• Law of Demand:
  • Increase in Price: Leads to a decrease in quantity demanded.
  • Decrease in Price: Leads to an increase in quantity demanded.
• Demand Schedule: Combination of quantities buyers are willing to purchase at various prices.
• Demand Curve: Downward sloping graph of the demand schedule.

Law of Supply

• Quantity Supplied: Amount of a good sellers are willing and able to sell at a particular price.
• Factors Affecting Supply: Primarily price.
• Law of Supply:
  • Increase in Price: Leads to an increase in quantity supplied.
  • Decrease in Price: Leads to a decrease in quantity supplied.
• Supply Schedule: Combination of quantities producers are willing to supply at various prices.
• Supply Curve: Upward sloping graph of the supply schedule.

Market Equilibrium

• Interaction of Supply and Demand: Both determine the market price, similar to how the two blades of a scissors work together.
• Equilibrium Point: Intersection of supply and demand curves.
  • Equilibrium Price: Price at the intersection.
  • Equilibrium Quantity: Quantity at the intersection.
• Characteristics of Equilibrium:
  • No shortage or surplus at the equilibrium price.
  • Quantity demanded equals quantity supplied.

Dynamics of Equilibrium

• Not a Static Point: Markets tend to settle at equilibrium, but prices may fluctuate.
• Analogy: Marble in a bowl, representing how prices roll around but tend toward equilibrium due to supply and demand forces.

Market in Transition

• Decreased Demand:
  • Initial Price too high, leading to surplus.
  • Surplus puts downward pressure on the price, moving it towards equilibrium.
• Increased Demand:
  • Initial Price too low, leading to shortage.
  • Shortage causes buyers to bid up the price, moving it towards equilibrium.

Conclusion

• Reference to further learning in "Episode 8" of the audio podcast series.
• Brief acknowledgment and closing.