Day 5: the market forces of supply and demand (continued from last class on day 4) Equilibrium: price has reached the level where quantity (q) supplied equals quantity demanded. Happens at a unique equilibrium price & equilibrium quantity > where the supply and demand curves intersect. Equilibrium price: price where q supplied = q demanded. Expected to be fairly stable > will endure. Surplus: quantity supplied is greater than quantity demanded (excess supply) Example: if p = then qdemand = 9 lattes. And qsupply = 25 lattes resulting in a surplus of 16 lattes (due to demand being too low, since prices are high) Expect something like this to happen once > then suppliers would cut down on the quantity supplied (so this trend does not continue) Shortage: quantity demanded is greater than quantity supplied (excess demand) Example: if p = then qdemand = 21 lattes. 3 steps to analyze changes in equilibrium: