ThinkEconomics: Changes in Supply, Demand and Market Equilibrium

		The price adjustment mechanism: If the quantity supplied, Q^s, is greater than the quantity demanded, Q^d, at a price P₀, then a surplus exists at P₀. Because of this surplus, consumers will bid down the market price. As the market price decreases, the quantity demanded will increase and the quantity supplied will decrease until the quantity demanded equals the quantity supplied, at which point the surplus is eliminated and a market equilibrium is established.

		An increase in supply S with constant demand D will decrease the equilibrium price P* and increase the equilibrium quantity Q. Similarly, a decrease* in supply S with constant demand D will increase the equilibrium price P* and decrease the equilibrium quantity Q*.



		Alternatively, an increase in demand D with constant supply S will increase both the equilibrium price P* and equilibrium quantity Q. A decrease* in demand D with constant supply S will decrease both the equilibrium price P* and equilibrium quantity Q*.

Introduction	Market Equilibrium in the Long Run
Changes in Supply, Demand and Market Equilibrium	The Aggregate Demand and Aggregate Supply Model
A Firm's Long Run Average Cost Curve	Macroeconomic Phenomena in the AD/AS Model
Profit Maximization for a Competitive Firm	Economic Policy Tools