Class #34 "Equilibrium and The Price System" (11/21/11)

Supple and Demand (look at graphs)

Ask yourself two questions when thinking about changes in supply and demand:
1) How does each half of the market respond? Buyers and sellers
2) Whose plans are satisfied? Buyers and sellers

Surplus - At a particular price when the quantity supplied > quantity demanded.
Shortage - At a particular price when the quantity demanded > quantity supplied. 

Buyers and sellers don't compete in a market, buyers compete against buyers and sellers compete against sellers. Being at equilibrium is not inherently good.

A high price signifies that the good is relatively scarce. As prices are increasing, a shortage is being alleviated. 
A low price signifies that the good is relatively not scarce. Scarcity talks about the relative abundance of a good, not its absolute abundance. 

Equilibrium - At a price where neither buyers or sellers have an incentive to change/alter their behavior.
Types of Equilibrium:
1) Market Clearing ("good"): Quantity demanded = Quantity supplied
2) Non-Market Clearing ("not good")

Rizzo

-Daniel Gaona