• equilibrium price (market-clearing price): the price where the intentions of buyers and sellers are balanced
  • Quantity Demanded (Qd) = Quantity Supplied (Qs). This is the most efficient allocation of resources.
    
  • on a graph, it is the intersection of the supply and demand curves
  • changes when either the supply curve or the demand curve shifts
  • competition among buyers and sellers drive prices to the equilibrium price
  • there is a surplus of products when the quantity supplied exceeds the quantity demanded (imagine an overflowing amount of goods on the shelves of stores)
  1. occurs when producing above the equilibrium point
  • there is a shortage of products when the quantity supplied is less than the quantity demanded (imagine that there's nothing on the shelves of stores)
  1. Producing below the equilibrium point
• equilibrium quantity- the quantity demanded/ supplied at the equilibrium price and there is no shortage or surplus of a product (Intersection of the demand and supply curves)

• Example: the equilibrium price in the graph to the right is $3. This means that at $3, there will be no surplus for the sellers and no shortages for the buyers.
  • All buyers willing and able to pay $3 for a bushel of corn will get it, and those who cannot or will not pay $3 will not get corn.
  • All producers willing and able to sell a bushel of corn for $3 will sell it, and those who cannot or will not sell $3 will not sell their product.
  • This equilibrium (market-clearing) price is established by the combination of freely made individual decisions.
    

• Productive efficiency - production of a product using least-cost methods
  • Allows the greatest conservation of resources to be used in other desired goods
    • Ex: Producing a bushel of corn for $3 of resources instead of $5 of resources so there are more resources for alternative uses.
• Allocative Efficiency - particular mix of goods and services most desired by society, assuming minimum-cost production
  • Ex: Using high-quality mineral water for bottled water rather than for refrigeration ice; manufacturing MP3s instead of cassettes
  • Society also diversify its use of resources to maintain food, energy, and consumer goods level

• an increase in demand raises both equilibrium price and equilibrium quantity.
• a decrease in demand reduces both equilibrium price and equilibrium quantity.

• an increase in supply reduces equilibrium price but increases equilibrium quantity,
• a decrease in supply raises equilibrium price, but decreases equilibrium quantity.

• price drop is even greater than if there was only one change
• increase in supply > decrease in demand results in equilibrium quantity increase
• increase in supply < decrease in demand results in equilibrium quantity decrease

• price rise is even greater than if there was only one change
• decrease in supply > increase in demand results in equilibrium quantity decrease
• decrease in supply < increase in demand results in equilibrium quantity increase

• increase in supply > increase in demand results in equilibrium price decrease
• increase in supply < increase in demand results in equilibrium price increase
• rise in equilibrium quantity is greater than caused by either change alone

• decrease in supply > decrease in demand results in rise of equilibrium price
• decrease in supply < decrease in demand results in fall of equilibrium price
• fall in equilibrium quantity is greater than caused by either change alone