Market equilibrium is like the sweet spot in economics where the quantity of a product that buyers want (demand) perfectly matches the quantity that sellers are willing to offer (supply). At this point, there's no pressure for the price to change because everyone's happy! The price at this equilibrium is called the equilibrium price, and the quantity is the equilibrium quantity. Understanding this balance is key to understanding how markets work.
Think of it like a seesaw. When demand is higher than supply, the price tends to increase (like one side of the seesaw going up). When supply is higher than demand, the price tends to decrease (the other side goes up). Equilibrium is when the seesaw is perfectly balanced. Let's test your knowledge!
Match the term with the correct definition:
| Term | Definition |
|---|---|
| 1. Demand | A. The quantity of a good or service that sellers are willing to offer at a given price. |
| 2. Supply | B. The point where the supply curve and demand curve intersect. |
| 3. Equilibrium Price | C. The quantity of a good or service that buyers are willing to purchase at a given price. |
| 4. Equilibrium Quantity | D. The price at which the quantity demanded equals the quantity supplied. |
| 5. Market Equilibrium | E. The quantity at which the quantity demanded equals the quantity supplied. |
Match the numbers (1-5) to the letters (A-E) in the order they appear above. For example, if 1 matched with A, 2 with B, 3 with C, 4 with D, and 5 with E, you would answer: C, A, B, E, D.
Complete the following paragraph using the words: surplus, shortage, demand, supply, equilibrium.
When the quantity demanded is greater than the quantity supplied, there is a __________. This indicates that the price is below the __________. Conversely, when the quantity supplied is greater than the quantity demanded, there is a __________. This means the price is above __________. The forces of __________ and __________ will always push the market towards __________.
Imagine there's a sudden increase in the popularity of electric scooters. How would this affect the market equilibrium price and quantity of electric scooters? Explain your reasoning.
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