Economic Quick Tip: Principles of Supply and Demand, Consumer and Producer Surplus, Market Equilibrium

Quantity supply increases at higher prices, while quantity demand increases at lower prices. Graphically, quantity would be on the x axis while price would be on the y.

The supply curve will tell us quantity supply as a function of price of goods/services, prices of inputs (factors of production), and technology used during production. The demand curve will tell us quantity demanded as a function of price of goods/services, price of related goods/services, and portion of income. Changes in price of quantity supply or demand results to movements along a curve, not an actual shift in the total supply or demand. 

On the other hand, changes in supply increases (shifts to the right) by increase technological production and/or decreases in price inputs. Demand increases (shifts to the right) with increases in income, increase in price of substitutes, and/or decreases in the price of complementary goods.

​Consumer surplus is the difference or excess that a consumer would have been willing to pay minus what they actually paid for. For a linear demand curve, the following is the calculation equals: (1/2)equilibrium quantity * ($ price of quantity demand when zero - equilibrium price).

Producer surplus is the difference or excess that a producer would have been willing to supply the good minus what they supplied it for. For a linear supply curve, the following is the calculation equals: (1/2)equilibrium quantity * (equilibrium price - $ price of quantity supply when zero).
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Equilibrium price is where quantity demand = quantity supply. 

If market price is greater than equilibrium price, there would be excess supply, as quantity supply is greater than quantity demand. Competition in firms to maximize sales would decrease the equilibrium price. 

If market price is less than equilibrium price, there would be excess demand, as quantity demand is greater than quantity supply. Competition to getting the product would increase equilibrium price.

Stable equilibrium refers to when the price moves away from equilibrium, forces would drive it back towards equilibrium. Unstable equilibrium refers to when price moves away, forces will continually drive price further from equilibrium. A bubble, for instance, is an unsustainable increase in asset prices from illogical pricing expectations, that causes future prices to further increase.