Equilibrium, shortages and surpluses
| English | Español |
|---|---|
| excess demand/ekˈses dɪˈmænd/ | exceso de demanda |
| excess supply/ekˈses səˈplaɪ/ | exceso de oferta |
A decision you can investigate
- A school stall offers reusable bottles. At a low price, buyers queue for bottles that are unavailable. At a high price, unsold bottles remain.
- Equilibrium concerns planned buying and selling, not whether everyone wants a bottle.
Build the explanation
- Equilibrium occurs where quantity demanded equals quantity supplied. Below equilibrium, excess demand 超额需求 can place upward pressure on price. Above it, excess supply 超额供给 can place downward pressure on price.
- A demand increase tends to raise equilibrium price and quantity with upward-sloping supply unchanged. A supply increase tends to lower price and raise quantity with downward-sloping demand unchanged.
Work through the evidence
- The schedule is: price 10, Qd 90, Qs 30; price 15, Qd 70, Qs 70; price 20, Qd 50, Qs 100. Equilibrium is 15 yuan and 70 bottles.
- At 10 yuan, excess demand = Qd − Qs = 90 − 30 = 60. At 20 yuan, excess supply = Qs − Qd = 100 − 50 = 50. Do not add the two quantities to find the imbalance.
What is equilibrium in the schedule?
At 15, both planned quantities are 70.
At 10 yuan, how large is the shortage?
Excess demand is 90 − 30 = 60.
An unsold surplus can encourage sellers to reduce price when prices are flexible.
A lower price encourages buying and discourages supply, reducing the imbalance.
Test the limits
- Adjustment depends on prices being able to change and buyers/sellers responding. A price control or a short production delay can prevent rapid clearing.
- A demand shift does not shift supply: the new equilibrium involves movement along the unchanged supply curve. If both curves shift, one effect may be ambiguous without magnitudes.
With demand unchanged, an increase in supply normally causes
The supply shift changes the intersection with existing demand.
Apply and explain your answer
- What imbalance occurs at 20 yuan in the bottle schedule?
- Excess supply of 50 bottles.
Match the terms to their meanings.
Each term describes a specific mechanism in this lesson.
Use the terms precisely
- excess demand: Quantity demanded exceeds quantity supplied at a particular price.
- excess supply: Quantity supplied exceeds quantity demanded at a particular price.
The schedule is: price 10, Qd 90, Qs 30; price 15, Qd 70, Qs 70; price 20, Qd 50, Qs 100. Equilibrium is 15 yuan and 70 bottles. At 10 yuan, excess demand = Qd − Qs = 90 − 30 = 60. At 20 yuan, excess supply = Qs − Qd = 100 − 50 = 50. Do not add the two quantities to find the imbalance.
Adjustment depends on prices being able to change and buyers/sellers responding. A price control or a short production delay can prevent rapid clearing. A demand shift does not shift supply: the new equilibrium involves movement along the unchanged supply curve. If both curves shift, one effect may be ambiguous without magnitudes.
Equilibrium occurs where quantity demanded equals quantity supplied. Below equilibrium, excess demand can place upward pressure on price. Above it, excess supply can place downward pressure on price.