2.7 Market Disequilibrium and Changes in Equilibrium
A price above equilibrium creates a surplus, below creates a shortage; curve shifts move equilibrium, and double shifts leave price or quantity indeterminate.
At a price above equilibrium, quantity supplied exceeds quantity demanded — a surplus — and competition among sellers pushes the price down. At a price below equilibrium, quantity demanded exceeds quantity supplied — a shortage — and buyers bid the price up. Free prices are self-correcting.
Single shifts have definite results: demand right raises both price and quantity; demand left lowers both; supply right lowers price and raises quantity; supply left raises price and lowers quantity. Always identify which curve shifted and why before predicting anything.
When BOTH curves shift, one variable is indeterminate without knowing the sizes of the shifts. Demand up plus supply up definitely raises quantity but leaves price ambiguous; demand up plus supply down definitely raises price but leaves quantity ambiguous. Writing 'indeterminate' when it applies earns the point — guessing a direction loses it.
Key terms for 2.7
Drag the curves yourself — the fastest way to make 2.7 stick.
Giving definite answers for both price and quantity on a double-shift question. When both curves shift, one of the two is indeterminate unless relative magnitudes are given — say so explicitly.
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