Equilibrium
How changes in supply and demand affect equilibrium

If quantity supplied exceeds quantity demand, a surplus is established, because of this surplus market price will decrease. As a result of this decrease in market price, demand will increase and supply will decrease until the quantity demanded equates the quantity supplied. Thus, the surplus is relinquished and market equilibrium has been reached. If demand increases yet supply remains constant, both equilibrium price and equilibrium quantity will increase; if demand is decreased yet supply remains constant, equilibrium price and quantity will decrease.




Quantity Supplied>Quantity Demanded= surplus established, market price ↓
Quantity Supplied<Quantity Demanded= deficit established, market price ↑

market price ↓= demand ↑ and supply ↓ until demand=supply and market equilibrium reached
market price ↑= demand ↓ and supply ↑ until demand=supply and market equilibrium is reached

demand ↑ + constant supply= equilibrium price/quantity ↑
demand ↓ + constant supply= equilibrium price/quantity ↓


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The following article talks about the increasing demand for oil, and the need to enhance oil production to meet that demand. It also addresses the fact that ‘conventional oil’—liquid hydrocarbons that come from deep pressurized reservoirs, and can be drilled out –will soon run out, and the next substitute, ‘nonconventional oils’, require large amounts of energy, resources, and money to be obtained. This means oil prices will increase dramatically due to the high expense of its production. At the moment, demand for oil is higher than companies are able to produce, and the expected cost of oil in the future is much higher than buyers are willing to pay. Equilibrium would be reached if production could meet demand, and the cost of per unit made of oil could be lowered so oil prices could be affordable to consumers.

http://web.ebscohost.com/ehost/detail?hid=8&sid=3f102630-7a24-4786-96bb-28bffeeec61f%40sessionmgr15&vid=14&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=sch&AN=46711013


Surplus and Shortage