ENDURING UNDERSTANDING

MKT-4
Although equilibria are stable, an economy can move from one equilibrium to another if market conditions change.

LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE
  • MKT-4.A
    a. Define (using graphs as appropriate) market equilibrium, consumer surplus, and producer surplus.
    b. Explain (using graphs as appropriate) how equilibrium price, quantity, consumer surplus, and producer surplus for a good or service are determined.
    c. Calculate (using data from a graph or table as appropriate) areas of consumer surplus and producer surplus at equilibrium.
ESSENTIAL KNOWLEDGE
  • MKT-4.A.1
    The supply-demand model is a tool for understanding what factors influence prices and quantities and why prices and quantities might differ across markets or change over time.
  • MKT-4.A.2
    In a perfectly competitive market, equilibrium is achieved (and markets clear with no shortages or surpluses) when the price of a good or service brings the quantity supplied and quantity demanded into balance, in the sense that buyers wish to purchase the same quantity that sellers wish to provide.
  • MKT-4.A.3
    Equilibrium price provides information to economic decision-makers to guide resource allocation.
  • MKT-4.A.4
    Economists use consumer surplus and producer surplus to measure the benefits markets create to buyers and sellers and understand market efficiency.
  • MKT-4.A.5
    Market equilibrium maximizes total economic surplus in the absence of market failures, meaning that perfectly competitive markets are efficient.