Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 2] DEMAND, SUPPLY, AND EQUILIBRIUM: AN OVERVIEW 19
Fig. 2-6
EXAMPLE 12 Since we know that at equilibrium QD x ¼ QS x , we can determine the equilibrium price and the equilibrium
quantity mathematically:
QD x ¼ QS x
8000 1000P x ¼ 4000 þ 2000P x
12,000 ¼ 3000P x
P x ¼ $4 (equilibrium price)
Substituting this equilibrium price either into the demand equation or into the supply equation, we get the equilibrium
quantity.
QD x ¼ 8000 1000(4) or QS x ¼ 4000 þ 2000(4)
¼ 8000 4000 ¼ 4000 þ 8000
¼ 4000 (units of X) ¼ 4000 (units of X)
2.10 TYPES OF EQUILIBRIA
An equilibrium condition is said to be stable if any deviation from the equilibrium will bring into operation
market forces which push us back toward equilibrium (see Example 13). If instead we move further away from
equilibrium, we have a situation of unstable equilibrium. For unstable equilibrium to occur, the market supply
curve must be negatively sloped and less steeply inclined than the (negatively sloped) market demand curve
(see Problem 2.19).
EXAMPLE 13. The equilibrium condition for commodity X shown in Table 2.6 and Fig. 2-6 of Example 11 is stable.
This is because, if for some reason the price of X rises above the equilibrium price of $4, QS x . QD x and a surplus of
commodity X arises which will automatically push us back toward the equilibrium price of $4. Similarly, if the price
of X falls below the equilibrium price, the resulting shortage will automatically cause the price of X to rise toward its
equilibrium level.
2.11 SHIFTS IN DEMAND AND SUPPLY, AND EQUILIBRIUM
If the market demand curve, the market supply curve, or both shift, the equilibrium point will change.
Ceteris paribus, an increase in demand (an upward shift) causes an increase in both the equilibrium price
and the equilibrium quantity. On the other hand, given the market demand for a commodity, an increase in
the market supply (a downward shift in supply) causes a reduction in the equilibrium price but an increase
in the equilibrium quantity. The opposite occurs for a decrease in demand or supply. If both the market
demand and the market supply increase, the equilibrium quantity rises but the equilibrium price may rise,
fall or remain unchanged (see Problem 2.23).