equilibrium (market-clearing price/quantity) - no shortage/excess demand/supply 

• everyone can buy/sell at current price >> intersection of demand/supply curves
• market price above equilibrium >> surplus supply >> inventories pile up
  • price must be cut to re-establish equilibrium, make consumers consume, increase demand
• market price below equilibrium >> excess demand >> not enough to go around
  • price must go up to re-establish equilibrium (ie reselling hybrid cars) >> arbitrage
• prices determined by relative supply/demand
  • comparative static analysis - compares new/old equilibrium
  • comparative dynamic analysis - traces changes over time
• raw materials price falls >> suppliers produce more >> surplus >> prices lowered to reach new equilibrium
  • travel down demand curve to new intersection
• income increases >> consumers want to buy more >> shortage >> prices raised to reach new equilibrium
  • travel up supply curve to new intersection
• equilibrium never shifts as much as demand/supply curves
  • other curve dampens overall effect

changes in supply/demand - can act together in real world to change equilibrium 

• increases in classroom costs >> decrease in supply
• increase in people wanting to go to college >> increase in demand
• demand shifts outward, supply shifts inward >> intersection rises in price more drastically
• w/ curve shifts, curve shape still stays the same

Given equations for the demand and supply curves, set them equal to each other to find the equilibrium point.  

• Given:
  • Qsupply = 100 + 5Psupply
  • Qdemand = 200 - 20Pdemand
• at equilibrium, Qsupply = Qdemand, and Psupply = Pdemand
• 100 + 5Psupply = 200 - 20Pdemand
  • 100 + 5P = 200 - 20P
  • 25P = 100
  • P = 4
  • Q = 100 + 5P = 120
• equilibrium at P=4, Q=120