Editing Supply and demand (section)

==Microeconomics==

===Equilibrium===
Generally speaking,  an equilibrium is defined to be the price-quantity pair where the quantity demanded is equal to the quantity supplied. It is represented by the intersection of the demand and supply curves. The analysis of various equilibria is a fundamental aspect of [[microeconomics]].

====Market equilibrium====
A situation in a market when the price is such that the quantity demanded by consumers is correctly balanced by the quantity that firms wish to supply. In this situation, the market clears.<ref>{{cite book |last1=Mankiw |first1=N.G. |last2=Taylor |first2=M.P. |date=2011 |title=Economics (2nd ed., revised ed.) |location=Andover |publisher=Cengage Learning}}</ref>

====Changes in market equilibrium====
Practical uses of supply and demand analysis often center on the different variables that change equilibrium price and quantity, represented as shifts in the respective curves. [[Comparative statics]] of such a shift traces the effects from the initial equilibrium to the new equilibrium.

====Demand curve shifts====
{{Main|Demand curve}}
[[File:Supply-demand-right-shift-demand.svg|thumb|Right-shift of [[demand curve]] increases both price and quantity.]]
When consumers increase the quantity demanded ''at a given price'', it is referred to as an ''increase in demand''. Increased demand can be represented on the graph as the curve being shifted to the right. At each price point, a greater quantity is demanded, as from the initial curve {{math|''D''<sub>1</sub>}} to the new curve {{math|''D''<sub>2</sub>}}. In the diagram, this raises the equilibrium price from {{math|''P''<sub>1</sub>}} to the higher {{math|''P''<sub>2</sub>}}. This raises the equilibrium quantity from {{math|''Q''<sub>1</sub>}} to the higher {{math|''Q''<sub>2</sub>}}.  (A movement along the curve is described as a "change in the quantity demanded" to distinguish it from a "change in demand", that is, a shift of the curve.) The ''increase'' in demand has caused an increase in (equilibrium) quantity.  The increase in demand could come from changing tastes and fashions, incomes, price changes in complementary and substitute goods, market expectations, and number of buyers. This would cause the entire demand curve to shift changing the equilibrium price and quantity.  Note in the diagram that the shift of the demand curve, by causing a new equilibrium price to emerge, resulted in ''movement along'' the supply curve from the point {{math|(''Q''<sub>1</sub>, ''P''<sub>1</sub>)}} to the point {{math|(''Q''<sub>2</sub>, ''P''<sub>2</sub>)}}.

If the ''demand decreases'', then the opposite happens: a shift of the curve to the left. If the demand starts at {{math|''D''<sub>2</sub>}}, and ''decreases'' to {{math|''D''<sub>1</sub>}}, the equilibrium price will decrease, and the equilibrium quantity will also decrease. The quantity supplied at each price is the same as before the demand shift, reflecting the fact that the supply curve has not shifted; but the equilibrium quantity and price are different as a result of the change (shift) in demand.

====Supply curve shifts====
{{Main|Supply (economics)}}
[[File:Supply-demand-right-shift-supply.svg|thumb|Right-shift of [[Supply (economics)|supply curve]] decreases price and increases quantity.]]
When technological progress occurs, the supply curve shifts.  For example, assume that someone invents a better way of growing wheat so that the cost of growing a given quantity of wheat decreases. <!-- DO NOT wikilink "wheat" as this is contrary to Wikipedia:Manual of Style/Linking#An example article -->  Otherwise stated, producers will be willing to supply more wheat at every price and this shifts the supply curve {{math|''S''<sub>1</sub>}} outward, to {{math|''S''<sub>2</sub>}}—an ''increase in supply''. This increase in supply causes the equilibrium price to decrease from {{math|''P''<sub>1</sub>}} to {{math|''P''<sub>2</sub>}}. The equilibrium quantity increases from {{math|''Q''<sub>1</sub>}} to {{math|''Q''<sub>2</sub>}} as consumers move along the demand curve to the new lower price. As a result of a supply curve shift, the price and the quantity move in opposite directions.  If the quantity supplied ''decreases'', the opposite happens. If the supply curve starts at {{math|''S''<sub>2</sub>}}, and shifts leftward to {{math|''S''<sub>1</sub>}}, the equilibrium price will increase and the equilibrium quantity will decrease as consumers move along the demand curve to the new higher price and associated lower quantity demanded. The quantity demanded at each price is the same as before the supply shift, reflecting the fact that the demand curve has not shifted. But due to the change (shift) in supply, the equilibrium quantity and price have changed.

The movement of the supply curve in response to a change in a non-price determinant of supply is caused by a change in the y-intercept, the constant term of the supply equation. The supply curve shifts up and down the y axis as non-price determinants of demand change.

===Partial equilibrium===
{{main|Partial equilibrium}}
Partial equilibrium, as the name suggests, takes into consideration only a part of the market to attain equilibrium.

Jain proposes (attributed to [[George Stigler]]): "A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed during the analysis."<ref>{{cite book|last=Jain|first=T.R.|title=Microeconomics and Basic Mathematics|year=2006–2007|publisher=VK Publications|location=New Delhi|isbn=978-81-87140-89-4|page=28|url=https://books.google.com/books?id=fUUoFwco2Z8C}}{{Dead link|date=August 2024 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>

The supply-and-demand model is a '''partial equilibrium''' model of [[economic equilibrium]], where the clearance on the [[Market (economics)|market]] of some specific [[good (economics)|goods]] is obtained independently from prices and quantities in other markets. In other words, the prices of all [[substitute good|substitutes]] and [[complement good|complements]], as well as [[income]] levels of [[consumer]]s are constant. This makes analysis much simpler than in a [[general equilibrium]] model which includes an entire economy.

Here the dynamic process is that prices adjust until supply equals demand. It is a powerfully simple technique that allows one to study [[economic equilibrium|equilibrium]], [[Pareto Efficiency|efficiency]] and [[comparative statics]].  The stringency of the simplifying assumptions inherent in this approach makes the model considerably more tractable, but may produce results which, while seemingly precise, do not effectively model real world economic
phenomena.

Partial equilibrium analysis examines the effects of policy action in creating equilibrium only in that particular sector or market which is directly affected, ignoring its effect in any other market or industry assuming that they being small will have little impact if any.

Hence this analysis is considered to be useful in constricted markets.

[[Léon Walras]] first formalized the idea of a one-period economic equilibrium of the general economic system, but it was French economist [[Antoine Augustin Cournot]] and English political economist [[Alfred Marshall]] who developed tractable models to analyze an economic system.