Market Equilibrium

Date: 2023-02-14

5 steps to explain the price adjustment process

1. Mention whether shortage / surplus occurs at the ORIGINAL price $P_0$.
2. Mention the effect a shortage / surplus has on price e.g.
   • ‘shortage creates an upward pressure on price’
   • ‘surplus creates a downward pressure on price’
3. Mention how consumers / producers react to shortage / surplus and the effect a change in price has on quantity demanded and supplied.
4. Mention how shortage / surplus will be eliminated e.g.
   • Quantity demanded will continue to decrease and quantity supplied will continue to rise until shortage is eliminated
5. Mention the final equilibrium point and final effect on equilibrium price and quantity e.g.
   • Final equilibrium point is at E2. Price has increased from P0 to P1 and quantity has increased from Q0 to Q1.