The actions of buyers and sellers should produce an equilibrium price in a market where demand and supply are equal.
The equilibrium price is also known as the market clearing price.
Where supply exceeds demand, because the market price is too high, there is a 'surplus' of product in the market.
Where demand exceeds supply there is a 'shortage' in the market because of low prices.
It seems that ticket prices for major sporting events may be being sold below the equilibrium price level.
This has created a shortage of tickets.
Equilibrium is where there is a balance between supply and demand.
At this point the price should be stable.
Shifts in demand:
The demand curve shifts to the right:
Demand has shifted to the right from D1 to D2.
This has caused a shortage at the current price, so that prices will rise and the equilibrium quantity will increase.
Why do you think this could have happened?
- A rise in incomes.
- A successful advertising campaign.
- A rise in the price of a substitute (competition).
- A fall in the price of a complement (such as an increased demand for tyres as the price of cars fall).
The demand curve shifts to the left:
Demand curves can also shift to the left for opposite reasons.
This leaves a surplus at the current price, so the price
will fall and the equilbrium quantity will fall.
The horsemeat scandal would have caused the demand for Tesco burgers to shift to the left.
Shifts in supply:
The supply curve shifts to the right:
This causes a surplus at the current price, so that prices will fall and the equilibrium quantity will rise.
Factors increasing supply and shifting the supply curve to the right:
Decreased production costs.
New competitors enter the market.
New technology.
Very high crop yields.
The supply curve shifts to the left:
This causes a shortage at the current price, so that prices will rise and the equilibrium quantity will fall.
Factors decreasing supply and shifting the supply curve to the left:
Increased production costs.
Withdrawal of market competitors.
A poor harvest.
A combination of factors could cause both curves to move.
More on supply and demand here.
What would happen to the equilibrium price of flights to China because of this news story?
What would happen to the equilibrium price of face masks in China because of this video news story?
