Equilibrium

     Equilibrium is when the quanity supplied is equal to the quanity demanded. It is the condition of the economy being at rest or balanced. For example, McDonalds makes 50 McChickens for lunch and 50 customers buy McChickens.

When the forces of demand and supply do not balance, market disequilibrium occurs. Disequilibrium can be shown by either a surplus or a shortage.

     Market surplus occurs when the quanity supplied exceeds the quanity demanded. Surplus is when the market price is greater than the equilibrium price. Producers view surplus as a negative incentive, while consumers view it as a positive one. For example, if New Balance makes too many shoes and there are few customers, then they will cut the prices so that they will have sales.

     Market shortage occurs when the quanity demanded exceeds the quanity supplied. Shortage is when the market price is less than the equilibrium price. Producers view shortage as a positive incentive, while consumers view it as a negative one. For example, when Apple sold their new iPhone, they sold out and made a large profit.

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