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AP Microeconomics AMSCO Guided Notes

2.7: Market Disequilibrium and Changes in Equilibrium

AP Microeconomics
AMSCO Guided Notes
2.1 Demand
2.2 Supply
2.3 Price Elasticity of Demand
2.4 Price Elasticity of Supply
2.5 Other Elasticities
2.6 Market Equilibrium and Consumer and Producer Surplus
2.7 Market Disequilibrium and Changes in Equilibrium
2.8 The Effects of Government Intervention in Markets
2.9 International Trade and Public Policy

AP Microeconomics Guided Notes

AMSCO 2.7 - Market Disequilibrium and Changes in Equilibrium

Essential Questions

  1. What factors cause supply and demand to fall out of balance with each other?
I. Market Disequilibrium

1. What is market disequilibrium and what conditions define it?

2. How do shortages and surpluses differ, and what price pressure does each create?

A. Shortages

1. What is a shortage and how do prices typically respond to shortages?

2. How does a shortage differ from scarcity?

3. What are examples of events or conditions that can cause shortages?

B. Surpluses

1. What is a surplus and how does it typically affect producers versus consumers?

2. What are the economic consequences of surpluses, particularly for perishable goods?

3. How can producers respond to a surplus to restore equilibrium?

II. Market Disequilibrium and Price Elasticity

1. What is price stickiness and how does it affect market adjustment to disequilibrium?

2. How do price elasticity of demand and price elasticity of supply influence producer decisions during disequilibrium?

3. What is the difference between sticky prices and elastic prices, and provide examples of each?

III. Causes of Market Disequilibrium

A. Difficulty in Predicting Behavior

1. How do changes in consumer tastes and preferences contribute to market disequilibrium?

2. Why can competition among producers lead to market disequilibrium even when individual producers make accurate predictions?

B. Changes in Economic Conditions

1. How do recessions and depressions cause market disequilibrium?

C. Population Shifts

1. How can changes in population size or geographic distribution cause market disequilibrium?

D. Government Intervention

1. How can government policies intentionally create market disequilibrium?

IV. How to Resolve Market Disequilibrium

1. What are the main mechanisms through which markets can return to equilibrium?

2. How can innovations in manufacturing technology help resolve market disequilibrium?

Key Terms

market price

market disequilibrium

shortage

surplus

equilibrium price

sticky price

economic recession

economic depression