📖 均衡价格与数量

Economics

I. Lesson Focus

This lesson explains how demand and supply interact to determine equilibrium price and quantity. Candidates must master the effects of shifts in demand and supply curves, distinguish between movement along a curve and a shift of the curve, analyze simultaneous shifts, and understand the difference between short-run and long-run equilibrium in competitive markets. The material forms the foundation for later topics on elasticity, efficiency, and market intervention.

II. The Problem

Suppose a city suddenly removes subsidies for new-energy vehicles while cobalt battery raw-material prices surge. How will the equilibrium price and quantity of electric vehicles change? If the government then introduces a new purchase-tax exemption, how will the market adjust again? CFA Level I candidates must be able to determine the direction of change in price and quantity given shifts in supply and demand. This is one of the most frequently tested practical applications in the Economics section.

III. Definition and Graphical Representation of Market Equilibrium

Market equilibrium occurs at the intersection of the demand and supply curves. At this point, the quantity demanded by buyers exactly equals the quantity supplied by sellers, the market clears, and there is neither shortage nor surplus.

The equilibrium price (P) and equilibrium quantity (Q) are uniquely determined by the intersection. The demand curve (D) slopes downward; the supply curve (S) slopes upward. Their intersection is the equilibrium.

When market price is above equilibrium, a surplus exists and sellers lower price until equilibrium is restored. When price is below equilibrium, a shortage exists and buyers bid price up until equilibrium is restored. This self-adjusting process is the price mechanism.

IV. Effects of a Change in Demand on Equilibrium

A rightward shift of the demand curve (increase in demand) raises both equilibrium price and quantity. A leftward shift (decrease in demand) lowers both.

Non-price determinants that shift the demand curve include: - Change in consumer income (normal goods vs. inferior goods) - Change in prices of related goods (substitutes vs. complements) - Change in tastes and preferences - Change in expectations - Change in number of buyers

Critical distinction: A change in quantity demanded is a movement along the demand curve caused by a change in the good’s own price. A change in demand is a shift of the entire demand curve caused by a non-price factor.

V. Effects of a Change in Supply on Equilibrium

A rightward shift of the supply curve (increase in supply) lowers equilibrium price and raises equilibrium quantity. A leftward shift (decrease in supply) raises price and lowers quantity.

Non-price determinants that shift the supply curve include: - Change in input prices - Technological change - Government policy (taxes, subsidies, regulation) - Producer expectations - Natural events (e.g., weather for agricultural products)

VI. Simultaneous Changes in Supply and Demand

When both curves shift, the net effect on equilibrium price and quantity depends on the relative magnitudes of the shifts: - Demand increases + Supply increases → Quantity definitely rises, price indeterminate - Demand increases + Supply decreases → Price definitely rises, quantity indeterminate - Demand decreases + Supply increases → Price definitely falls, quantity indeterminate - Demand decreases + Supply decreases → Quantity definitely falls, price indeterminate

This scenario is one of the most frequently missed on the exam; graphical analysis is essential.

VII. Short-Run versus Long-Run Equilibrium

In the short run, some factors of production (plant, equipment) are fixed, so supply is relatively inelastic and the supply curve is steeper. In the long run, all factors are variable, supply is more elastic, and the supply curve is flatter.

In the long run, firms can enter or exit the market freely. Positive economic profit attracts entry, increasing supply until economic profit is driven to zero (P = minimum ATC). Economic losses cause exit, reducing supply until losses disappear. Therefore, long-run equilibrium in perfect competition occurs where price equals minimum long-run average cost and firms earn only a normal profit.

Worked Cases

Case 1: Single Demand Shock

The initial equilibrium in the electric-vehicle market is P = CNY 250,000 per vehicle and Q = 80,000 vehicles per year. Rising incomes and environmental awareness shift demand rightward. The new equilibrium is P = CNY 280,000 and Q = 100,000 vehicles.

Calculation of percentage changes: - Price increase = (280,000 – 250,000) / 250,000 = 12% - Quantity increase = (100,000 – 80,000) / 80,000 = 25%

Conclusion: An increase in demand raises both P and Q.

Case 2: Single Supply Shock

The initial equilibrium in an agricultural market is P = CNY 4 per kg and Q = 500 tonnes per month. Extreme weather shifts supply leftward. The new equilibrium is P = CNY 6 per kg and Q = 350 tonnes per month.

Calculation: - Price increase = (6 – 4) / 4 = 50% - Quantity decrease = (350 – 500) / 500 = –30%

Conclusion: A decrease in supply raises P and lowers Q.

Case 3: Simultaneous Shifts (Complex Scenario)

Initial smartphone equilibrium: P = CNY 4,500, Q = 2 million units per quarter. - New technology shifts supply right (increase in supply) - Lower-priced rival brands shift demand left (decrease in demand)

Assume the supply shift is larger than the demand shift. New equilibrium: P = CNY 4,100, Q = 2.2 million units.

Analysis: - Quantity rises (supply shift dominates quantity) - Price falls (both shifts reinforce lower price)

If the supply shift were smaller, quantity could fall. The case illustrates that knowing only the direction of shifts is insufficient; relative magnitudes must be compared.

Traps

Key Formulas

• Equilibrium condition: $Q_D(P^) = Q_S(P^)$
• Surplus: $Q_S > Q_D$ → downward pressure on price
• Shortage: $Q_D > Q_S$ → upward pressure on price
• Change in demand: non-price factor → shift of entire curve
• Change in quantity demanded: own-price change → movement along curve
• Long-run competitive equilibrium: $P = MC = ATC_{min} = LRAC_{min}$
• Consumer surplus: area below demand curve and above price
• Producer surplus: area above supply curve and below price

Practice Questions

Q1. If consumer income rises (normal good) and raw-material costs fall at the same time, the new equilibrium price and quantity are most likely to show:
A. Price rises, quantity rises
B. Price falls, quantity rises
C. Both price and quantity direction indeterminate
D. Price definitely falls

Q2. Which of the following will shift the demand curve to the left?
A. A decrease in the good’s own price
B. An increase in the price of a substitute
C. Consumers expect the future price to rise
D. A decrease in consumer income (normal good)

Q3. In a perfectly competitive market, economic profit at long-run equilibrium is:
A. Greater than zero
B. Equal to zero
C. Less than zero
D. Dependent on market demand

Q4. The most direct effect of a per-unit tax imposed by government is to:
A. Shift the demand curve downward
B. Shift the supply curve upward
C. Increase equilibrium quantity
D. Increase consumer surplus

Q5. A market is initially in equilibrium at P = $20 and Q = 100 units. An increase in demand moves equilibrium to P = $26 and Q = 130 units. The approximate price elasticity of supply is:
A. 0.5
B. 1.0
C. 1.5
D. 2.0

Q6. When supply decreases and demand increases simultaneously, which outcome is certain?
A. Equilibrium quantity increases
B. Equilibrium price rises
C. Equilibrium quantity decreases
D. Equilibrium price falls

Q7. Which statement about short-run and long-run supply curves is correct?
A. The short-run supply curve is flatter than the long-run curve
B. In perfect competition the long-run supply curve tends to be horizontal
C. Firms cannot enter or exit in the long run
D. All inputs are variable in the short run

Q8. For a Giffen good, when its price rises:
A. Quantity demanded must increase
B. The substitution effect dominates the income effect
C. The total effect is a decrease in quantity demanded
D. The income effect is negative, larger than the substitution effect, and leads to higher quantity demanded

Answers

Takeaways

• Equilibrium occurs where quantity demanded equals quantity supplied ($Q_D = Q_S$).
• “Change in demand/supply” means the curve shifts; “change in quantity demanded/supplied” means movement along the curve.
• When both curves shift, compare relative magnitudes to determine the final direction of price or quantity.
• In long-run competitive equilibrium, economic profit is zero and $P = MC = minimum\ ATC$.
• Taxes, subsidies, technology, income, and expectations are the primary exogenous factors that shift supply or demand curves.
• Graphical analysis remains the fastest and most reliable way to determine the direction of equilibrium changes.