Price Determination

• • Market Equilibrium is a situation I which the quantity of a good or service supplied by producers equals the quantity demanded by consumers.
• • The equilibrium market price is the price at which the market for the product clears
• • Market Demand is the sum of the individual demand for a product from buyers in the market
• • Individual market is the price that a consumer is willing to pay for a good or service in each time period
• • Market supply sums the supply of all individual producers in a market
• • Outward shift of demand --> Increased willingness and ability to buy --> Market can now sustain a higher price --> This higher price is an incentive for firms to expand production --> Supply responds if there is spare capacity
• • Inward shift of market supply --> Scarcity of oil in the market relative to current demand --> Allows sellers to charge a higher price --> Market clearance is a signal for consumers to find ways of cutting demand --> Higher price causes a movement up (contraction) up demand curve