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In its most basic form, equilibrium is when demand and supply -- the forces -- are equal🟰. This is then often defined as a “state of rest” 💤 in which there is no tendency for the price or quantity to change so the economic variables remain unchanged when there are no external influences. To build slightly off of this, market equilibrium is when the amount consumers wish to buy at a certain price is the same amount sellers are willing to sell at that price💲. (Lecture 5 and 6 Slides)
Equilibrium and Housing
Equilibrium and Housing
When graphed, it is very easy to spot the equilibrium as it is where the supply and demand intersect, since they are equal to each other. When discussing equilibrium in terms of housing 🏘️, an example would be if there were 25 houses set at $75,000 and a market demand of 25 potential homeowners, as shown below. (Chen, 2020)
Another example of equilibrium would be if the demand for houses increased 📈 due to economic factors like lower mortgage rates, but the overall supply remained the same, then the prices would have to increase. Equilibrium would eventually be achieved, it would just take place at an increased price. 💸
Different Types of Equilibrium
Different Types of Equilibrium
Market Equilibrium: occurs when the quantity of goods supplied is equal to the quantity demanded. On a graph, it is shown at the intersection of the supply and demand curves, as shown above.
Static Equilibrium: economic variables remain constant overtime as there is no need to change -- very rare and unrealistic for a market.
Dynamic Equilibrium: similar to static equilibrium but economic variable change over time but stay in a consistent pattern.
(Chen, 2020)
Analysing Changes in Equilibrium
Analysing Changes in Equilibrium
When trying to determine and identify if there has been a change in equilibrium, it is helpful to think about these four questions.
Does the event in question affect the supply curve, the demand curve, or both? 🤔
Does the event in question create a movement along the curve or a shift? 📉
If a shift, does it shift the curve to the right or left? ⬅️➡️
Consider using a diagram to think about how and why the shift affects the initial points and the new equilibrium in terms of surplus and shortage.📈
Key Takeaways
Key Takeaways
Equilibrium refers to a state when the economic forces -- supply and demand -- are equal and balanced. ⚖️
While equilibrium can be near impossible to achieve, when some markets are in equilibrium, it signifies efficiency 👍 because resources are being allocated productively. 🧑🏫
Markets respond to disruptions like consumer preferences, technology advancements, policy interventions, etc. by adjusting prices, quantities, and other factors to try to achieve equilibrium in a timely manner. ⏰
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