Market Equilibrium, Disequilibrium, and Changes in Equilibrium — AP Microeconomics
1. Core Concepts of Equilibrium and Disequilibrium ★☆☆☆☆ ⏱ 3 min
Market equilibrium is the unique price-quantity combination where quantity demanded exactly equals quantity supplied ($Q_d = Q_s$). At equilibrium, there is no inherent pressure for price or quantity to change, because consumers can buy all they want and producers can sell all they want at the equilibrium price.
Disequilibrium describes any market outcome where $Q_d \neq Q_s$, resulting in either a shortage or a surplus. When non-price determinants of supply or demand change, the market adjusts to a new equilibrium; comparative statics is the method of comparing the original and new equilibrium to predict changes in price and quantity. This topic is heavily tested on the AP Micro exam, appearing in both multiple choice and free response questions.
Exam tip: Always use correct terminology: 'change in demand/supply' refers to a shift of the entire curve, while 'change in quantity demanded/supplied' refers to movement along an existing curve.
2. Calculating Market Equilibrium Algebraically ★★☆☆☆ ⏱ 4 min
For most AP Microeconomics questions, you will work with linear direct demand and supply functions, written as:
Q_d = a - bP \\ Q_s = c + dP
Where $Q_d$ = quantity demanded, $Q_s$ = quantity supplied, $P$ = price of the good, and $a, b, c, d$ are constants. To find equilibrium, follow these steps: 1. Set $Q_d = Q_s$ (the core equilibrium condition), 2. Solve for equilibrium price $P_e$, 3. Substitute $P_e$ back into either function to get equilibrium quantity $Q_e$, 4. Verify by plugging $P_e$ into both functions to confirm you get the same $Q_e$, which catches common algebra errors.
Exam tip: If you are given inverse functions (with $P$ as a function of $Q$), always rearrange to get $Q_d$ and $Q_s$ before setting them equal. Do not set inverse functions equal directly, this will give the wrong equilibrium.
3. Disequilibrium: Surpluses and Shortages ★★☆☆☆ ⏱ 3 min
Disequilibrium occurs at any price that is not equal to $P_e$, so $Q_d \neq Q_s$. There are two types of disequilibrium:
- **Shortage (excess demand):** Occurs when $P < P_e$, so $Q_d > Q_s$. Competition between consumers pushes prices up toward equilibrium.
- **Surplus (excess supply):** Occurs when $P > P_e$, so $Q_s > Q_d$. Producers cut prices to clear inventory, pushing prices down toward equilibrium.
In unregulated competitive markets, disequilibrium is temporary; persistent disequilibrium only occurs with external constraints like government price controls.
Exam tip: On FRQs, always report the size of disequilibrium as a positive number: shortage = $Q_d - Q_s$, surplus = $Q_s - Q_d$.
4. Changes in Equilibrium: Single Shifts ★★☆☆☆ ⏱ 4 min
When a non-price determinant of supply or demand changes, the entire curve shifts, leading to a new equilibrium. Comparative statics compares the original and new equilibrium to predict changes in $P_e$ and $Q_e$. For single shifts (only supply or only demand shifts), the direction of change is always predictable:
- Rightward demand shift (demand increase): $P_e$ ↑, $Q_e$ ↑
- Leftward demand shift (demand decrease): $P_e$ ↓, $Q_e$ ↓
- Rightward supply shift (supply increase): $P_e$ ↓, $Q_e$ ↑
- Leftward supply shift (supply decrease): $P_e$ ↑, $Q_e$ ↓
To adjust a linear function for a shift: add the size of the shift to the intercept term for a right shift (increase in quantity at every price), subtract for a left shift (decrease in quantity at every price).
Exam tip: AP graders penalize mixing up 'shift of the curve' vs 'movement along the curve'. Always use the correct terminology for shifts vs movements.
5. Simultaneous Shifts of Supply and Demand ★★★☆☆ ⏱ 4 min
When both supply and demand shift at the same time, one equilibrium outcome (either $P_e$ or $Q_e$) will always be ambiguous unless you know the relative size of the shifts. The core rule is: if both shifts push an outcome in the same direction, the change is definite; if shifts push in opposite directions, the change is ambiguous.
- Demand increase (right) + supply decrease (left): $P_e$ definitely increases, $Q_e$ is ambiguous
- Demand increase (right) + supply increase (right): $Q_e$ definitely increases, $P_e$ is ambiguous
- Demand decrease (left) + supply increase (right): $P_e$ definitely decreases, $Q_e$ is ambiguous
- Demand decrease (left) + supply decrease (left): $Q_e$ definitely decreases, $P_e$ is ambiguous
Exam tip: On MCQs asking for the effect of simultaneous shifts, you can immediately eliminate any option that claims both $P_e$ and $Q_e$ have definite changes, which is impossible.
Common Pitfalls
Why: Students mix up terminology because both changes alter equilibrium quantity, leading to mislabeling the shifted curve
Why: Students confuse 'increase in supply' (more output at every price) with the effect of higher costs
Why: Students forget that opposite pushes on one outcome leave it ambiguous without shift magnitudes
Why: Students mix up which quantity is larger for each type of disequilibrium
Why: Students rush through calculation questions on the exam
Why: Students confuse direct and inverse function forms, violating the equilibrium condition