Factors Influencing Market Equilibrium: Understanding Shifts

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Economics

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Feb 20, 2024

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Step 5: Illustrate How Different Factors Impact Market Equilibrium and How Market Equilibrium Is Re-Established In this step, we’ll explore how shifts both in the supply and demand curves due to changes in the determinants of demand and supply moves the price equilibrium point in a market. In the readings below, there’s a discussion of the four elements to returning to price equilibrium. Try to see how this is applied as different examples are provided in the readings. Activity: Differentiate Between Markets with Excess Demand and Equilibrium If you are confident you understand the distinction between the states of excess demand and market equilibrium, then try to explain why the market will naturally return to the equilibrium state if there are no constraints. Try drawing the graph to see how you do !

Learning Activity: Drawing Demand and Supply Curves Do the following learning activity by graphing the data and answering the questions below. Review Questions Once you complete the reading, practice your ability to draw demand and supply curves using the data in Table 4.1. Write the answers to the following review questions in your course notebook when you complete the readings. Check the feedback below for your instructor’s responses. Question 1: What price and quantity are the equilibrium price and quantity, ceteris paribus? Question 2: What is the last price and quantity before the Excess Demand scenario ends as it reaches the equilibrium price and quantity? Question 3: What is the last price and quantity before the Excess Supply scenario ends as it reaches the equilibrium price and quantity?

Figure 4.2 Labor Market Example: Demand and Supply for Nurses in Minneapolis-St. Paul-Bloomington The demand curve (D) of those employers who want to hire nurses intersects with the supply curve (S) of those who are qualified and willing to work as nurses at the equilibrium point (E). The equilibrium salary is $70,000 and the equilibrium quantity is 34,000 nurses. At an above-equilibrium salary of $75,000, quantity supplied increases to 38,000, but the quantity of nurses demanded at the higher pay declines to 33,000. At this above-equilibrium salary, an excess supply or surplus of nurses would exist. At a below-equilibrium salary of $60,000, quantity supplied declines to 27,000, while the quantity demanded at the lower wage increases to 40,000 nurses. At this below-equilibrium salary, excess demand or a shortage exists. (Greenlaw & Shapiro, 2017, p. 95) Answer 1: Based on Figure 4.2 the equilibrium price (annual salary is $70,000 and the equilibrium quantity is 34,000 nurses. Answer 2: Based on Figure 4.2 the last Excess Demand Price and Quantity before arriving at market equilibrium is a price of $65,000, a quantity demanded of 37,000 nurses and the number supplied being 31,000 nurses. Answer 3: The last Excess Supply Price and quantities before equilibrium are $75,000, quantity demanded 33,000 and quantity supplied 38,000.

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