- Define market, price quantity equilibrium
- Draw and explain market equilibrium graph
- Calculate and draw supply, demand and equilibrium
- Explain consumer and producer surplus
- Explain and draw excess demand and excess supply
- Draw and explain maximum and minimum price
Market Equilibrium (demand and supply)
Market equilibrium is the point where the quantity of a product demanded is equal to the quantity of a product supplied. This creates the market clearing price and quantity where there is no excess demand or excess supply.
Equilibrium price is the market-clearing price. It is set where D = S.
Equilibrium quantity: The level of output where quantity demanded equals the quantity supplied.
Watch additional videos here for even better understanding.
Activity: Using Your Whiteboard
Illustrate the effects which each of the following is most likely to have on the equilibrium position for Irish Crisps:
- The lack of rainfall in 2018 creates a drought which reduces potato crops.
- Vegan consumers stage protests against animal‐derived flavouring on crisps.
- Crisp companies receive a subsidy from the government.
- 50% reduction in the price of drinks sols with crisps
- Quota placed on the quantity of crisps entering Ireland
- Government introduce a 15% levy (tax) on all income earned
Consumer and Producer Surplus
Consumer Surplus: is the difference between what a consumer actually pays for a good and the maximum s/he was willing to pay for the good rather than do without it. The utility gained from a good or service in excess of the amount paid for it.
Producer Surplus: is the difference between what a producer receives for a good and the minimum s/he was willing to accept for the good. The extra earnings obtained by the producer above the minimum required for them to supply the good or service.
Watch video here.
Excess Supply and Excess Demand
Activity: Using Your Whiteboard
- Draw a demand and supply diagram, illustrate how a shortage of tickets for a major concert may arise. The concert venue has a maximum capacity of 30,000 people.
- Using a supply and demand diagram, illustrate how a market would return to equilibrium following a surplus (excess surplus) in the market
Government Intervention: Impact on Market Equilibrium
Assessment Advice: Research Project
It is a good idea to start learning the skills needed to complete your Research Project. You do not have all the knowledge and conceptual understanding yet but you can learn to research and make links to other parts of the Leaving Cert course. It is important to use a reputable source when collecting data, therefore we will use the CSO ( Central Statistics Office).
Using your knowledge of Economics so far, research the following factors (using the CSO) and explain how they might impact the market equilibrium for rental accommodation:
Identify which determinants of demand and supply are impacted and support with labelled diagrams.
Extension: Using the infographic create a research question that you might like to investigate.
Extension Activities: Podcasts
Ep 25: Mortgages – Your Questions Answered by expert Eoin O' Connor of Finance Solutions – The Crazy House Prices Podcast
Test your knowledge of Market Equilibrium