Market Equilibrium, Disequilibrium, and Changes in Equilibrium — AP Microeconomics Study Guide

For: AP Microeconomics candidates sitting AP Microeconomics.

Covers: Market equilibrium definition, algebraic calculation of equilibrium price and quantity, disequilibrium (surpluses and shortages), comparative statics for single and simultaneous supply and demand shifts, and spontaneous market adjustment toward equilibrium.

You should already know: Law of demand and non-price determinants of demand, Law of supply and non-price determinants of supply, How to interpret linear supply and demand functions.

A note on the practice questions: All worked questions in the "Practice Questions" section below are original problems written by us in the AP Microeconomics style for educational use. They are not reproductions of past College Board / Cambridge / IB papers and may differ in wording, numerical values, or context. Use them to practise the technique; cross-check with official mark schemes for grading conventions.

1. What Is Market Equilibrium, Disequilibrium, and Changes in Equilibrium?

Market equilibrium is the unique price-quantity combination where quantity demanded exactly equals quantity supplied ($Q_d=Q_s$). At this point, there is no inherent pressure for price or quantity to change, because consumers can buy exactly as much as they want at the equilibrium price, and producers can sell exactly as much as they want. By the AP Microeconomics Course and Exam Description (CED), this topic is a core component of Unit 2 (Supply and Demand), which makes up 18-32% of the total AP exam score, with this specific topic accounting for 7-13% of Unit 2’s weight. It is heavily tested in both multiple choice (MCQ) as calculation and conceptual questions, and almost always as the opening section of a free response question (FRQ) testing graphing or calculation. Disequilibrium describes any outcome where $Q_d\ne Q_s$, resulting in a shortage or surplus, while changes in equilibrium occur when non-price determinants shift supply, demand, or both, leading to a new stable equilibrium outcome. Comparative statics is the standard method of comparing the original and new equilibrium to predict changes in price and quantity.

2. Calculating Market Equilibrium Algebraically

The core defining condition of a competitive market equilibrium is that quantity demanded equals quantity supplied. For the vast majority of AP Microeconomics questions, you will work with linear direct demand and supply functions, written as: $$Q_d=a-bP$$ $$Q_s=c+dP$$ Where $Q_d$ is quantity demanded, $Q_s$ is quantity supplied, $P$ is the own price of the good, $a,b,c,d$ are constants. To find equilibrium, you set $Q_d=Q_s$ (the equilibrium condition) and solve for the equilibrium price $P_e$, then plug $P_e$ back into either function to get equilibrium quantity $Q_e$. Always verify by plugging $P_e$ into both functions to confirm you get the same $Q_e$, as this catches common algebra errors. Equilibrium is the only price where the market clears, meaning there is no unsold inventory and no unmet demand.

Worked Example

Suppose the weekly demand for homemade sourdough loaves in a neighborhood is given by $Q_d=100-2P$, where $Q_d$ is loaves per week and $P$ is price per loaf in dollars. Supply is given by $Q_s=10+3P$. Calculate the equilibrium price and quantity.

1. Apply the equilibrium condition $Q_d=Q_s$, and substitute the given functions: $$100-2P=10+3P$$
2. Rearrange terms to isolate $P$: $$100-10=3P+2P⟹90=5P$$
3. Solve for equilibrium price: $P_e=90/5=\$18$.
4. Plug $P_e$ into the demand function to find $Q_e$: $Q_e=100-2(18)=64$ loaves.
5. Verify with the supply function: $Q_s=10+3(18)=64$, which matches, so the solution is correct.

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 the inverse functions equal to each other directly, this will give you the wrong equilibrium.

3. Disequilibrium: Surpluses and Shortages

Disequilibrium occurs at any price that is not equal to $P_e$, meaning quantity demanded does not equal quantity supplied. There are two distinct types of disequilibrium:

1. Shortage (excess demand): Occurs when the current market price is below equilibrium ($P<P_e$). At this low price, $Q_d>Q_s$: consumers want to buy more than producers are willing to sell. Competition between consumers who cannot find the good will push prices up toward $P_e$.
2. Surplus (excess supply): Occurs when the current market price is above equilibrium ($P>P_e$). At this high price, $Q_s>Q_d$: producers want to sell more than consumers are willing to buy. Producers will cut prices to clear unsold inventory, pushing prices down toward $P_e$. In an unregulated competitive market, disequilibrium is temporary, as price adjusts automatically to return to equilibrium. Persistent disequilibrium only occurs when there is an external constraint like a government price control.

Worked Example

Using the sourdough market from the previous example ($Q_d=100-2P$, $Q_s=10+3P$, $P_e=\$18$, $Q_e=64$), the neighborhood association imposes a price cap of $\$10$ per loaf to make sourdough more affordable. Is there a shortage or surplus, and what is its size?

1. Plug the imposed price $P=\$10$ into both demand and supply functions.
2. Calculate $Q_d=100-2(10)=80$ loaves. Calculate $Q_s=10+3(10)=40$ loaves.
3. Compare: $Q_d(80)>Q_s(40)$, so this is a shortage.
4. Calculate the size of the shortage: $\text{Shortage}=Q_d-Q_s=80-40=40$ loaves per week.

Exam tip: On FRQs, you must label the size of the disequilibrium correctly: a shortage is always a positive number of units, so always subtract quantity supplied from quantity demanded for shortages, and vice versa for surpluses.

4. Changes in Equilibrium: Single Shifts

When a non-price determinant of supply or demand changes, the entire supply or demand curve shifts, leading to a new equilibrium. Comparative statics compares the original equilibrium to the new equilibrium to predict how $P_e$ and $Q_e$ change. For a single shift (only supply or only demand shifts), the direction of change for both $P_e$ and $Q_e$ is always predictable:

• Rightward demand shift (demand increase): $P_e$ increases, $Q_e$ increases
• Leftward demand shift (demand decrease): $P_e$ decreases, $Q_e$ decreases
• Rightward supply shift (supply increase): $P_e$ decreases, $Q_e$ increases
• Leftward supply shift (supply decrease): $P_e$ increases, $Q_e$ decreases To adjust the function for a shift: add the size of the shift to the intercept term for a right shift, subtract for a left shift, regardless of whether it is supply or demand.

Worked Example

Original sourdough market: $Q_d=100-2P$, $Q_s=10+3P$, original $P_e=\$18$, $Q_e=64$. A viral social media post about the neighborhood sourdough increases demand by 20 loaves at every price. Find the new equilibrium price and quantity.

1. Adjust the demand function for the 20-unit right shift: $Q_d^{\prime }=100+20-2P=120-2P$. Supply does not change, so $Q_s=10+3P$.
2. Set $Q_d^{\prime }=Q_s$: $120-2P=10+3P$.
3. Solve for $P_e^{\prime }$: $110=5P⟹P_e^{\prime }=\$22$.
4. Solve for $Q_e^{\prime }$: $Q_e^{\prime }=120-2(22)=76$ loaves. Verify with supply: $10+3(22)=76$, correct.
5. The new equilibrium has higher price and higher quantity, which matches the prediction for a rightward demand shift.

Exam tip: AP graders strictly penalize mixing up "shift of the curve" vs "movement along the curve". Always use the term "change in demand" or "change in supply" for shifts of the entire curve, and "change in quantity demanded" or "change in quantity supplied" for movements along an existing curve.

5. Simultaneous Shifts of Supply and Demand

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 rule to remember: if both shifts push an outcome in the same direction, that outcome’s change is definite; if the shifts push an outcome in opposite directions, the change is ambiguous (it depends on how big each shift is). For example:

• Demand increases (right) + supply decreases (left): both shifts push $P_e$ up, so $P_e$ definitely increases. Demand pushes $Q_e$ up, supply pushes $Q_e$ down, so $Q_e$ is ambiguous.
• Demand increases (right) + supply increases (right): both push $Q_e$ up, so $Q_e$ definitely increases, $P_e$ is ambiguous.

Worked Example

Original sourdough market: $Q_d=100-2P$, $Q_s=10+3P$. Two changes happen: (1) the viral post increases demand by 20 loaves at every price, (2) a wheat shortage decreases supply by 30 loaves at every price. What is the definite vs ambiguous outcome, and what is the new equilibrium?

1. Adjust the functions: new $Q_d^{\prime }=120-2P$, new $Q_s^{\prime }=10-30+3P=-20+3P$.
2. Per our rule: demand increase pushes $P_e$ up, supply decrease pushes $P_e$ up, so $P_e$ is definitely increased. Demand pushes $Q_e$ up, supply pushes $Q_e$ down, so $Q_e$ is ambiguous.
3. Set $Q_d^{\prime }=Q_s^{\prime }$: $120-2P=-20+3P⟹140=5P⟹P_e^{\prime }=\$28$, $Q_e^{\prime }=120-2(28)=64$.
4. In this case, $Q_e$ is unchanged from the original 64 loaves, but that is specific to the size of the shifts; if the demand shift had been larger, $Q_e$ would have increased.

Exam tip: On multiple choice questions asking for the effect of simultaneous shifts, you can immediately eliminate any option that claims both $P_e$ and $Q_e$ have definite changes, since that is impossible.

6. Common Pitfalls (and how to avoid them)

• Wrong move: Writing "higher input costs reduce demand for lattes" when the supply curve shifts left. Why: Students mix up terminology for shifts vs movements, because both change equilibrium quantity, so they mislabel the shifted curve. Correct move: Always ask: did the change affect producers' costs (supply shift) or consumer willingness to buy (demand shift) before labeling the shift.
• Wrong move: Shifting supply right when input costs increase. Why: Students confuse "increase in supply" (more quantity at every price) with higher costs leading to less quantity at every price. Correct move: Before drawing, ask: does this change lead to more output at every price (right shift) or less output at every price (left shift).
• Wrong move: Claiming both $P_e$ and $Q_e$ are definitely changed when both supply and demand shift. Why: Students forget that opposite pushes on one outcome leave it ambiguous without knowing shift magnitudes. Correct move: Always check the direction each shift pushes each outcome, and label ambiguous outcomes if pushes are opposite.
• Wrong move: Calculating shortage size as $Q_s-Q_d$, leading to a negative number. Why: Students mix up which quantity is larger for each type of disequilibrium. Correct move: Memorize: shortage = $Q_d-Q_s$, surplus = $Q_s-Q_d$, so size is always positive.
• Wrong move: Forgetting to check $Q_e$ in both functions after solving for equilibrium, leaving algebra errors uncaught. Why: Students rush through calculation questions on exam. Correct move: Always plug $P_e$ into both $Q_d$ and $Q_s$ to confirm you get the same $Q_e$ before moving on.
• Wrong move: Setting inverse demand and inverse supply equal to each other directly to find equilibrium, instead of rearranging to get $Q_d=Q_s$. Why: Students confuse direct and inverse function forms. Correct move: The equilibrium condition is always quantity demanded equals quantity supplied, so always rearrange functions to get $Q_d$ and $Q_s$ before setting them equal.

7. Practice Questions (AP Microeconomics Style)

Question 1 (Multiple Choice)

The market for hiking trail mix has demand given by $Q_d=120-4P$, where $Q_d$ is bags per week, and $P$ is price per bag in dollars. Supply is given by $Q_s=-30+6P$. A new report finds harmful additives in most trail mix, leading to a 10-unit decrease in quantity demanded at every price. What is the new equilibrium price per bag? A) $13 B) $14 C) $15 D) $16

Worked Solution: First, adjust the demand function to reflect the 10-unit decrease at every price: new demand $Q_d^{\prime }=120-10-4P=110-4P$. Supply remains unchanged at $Q_s=-30+6P$. Apply the equilibrium condition $Q_d^{\prime }=Q_s$, so $110-4P=-30+6P$. Rearrange to get $140=10P$, so $P=14$. The original equilibrium price was $15, which is the most common incorrect answer for students who forget to shift demand. Correct answer is B.

Question 2 (Free Response)

The market for portable phone chargers at a large music festival is described by: $Q_d=200-5P$ (chargers per day) $Q_s=10P-100$ (a) Calculate the initial equilibrium price and quantity for phone chargers. Show your work. (b) A surge of festival attendees increases demand by 50 chargers at every price. On a correctly labeled graph, show this change, and solve for the new equilibrium price and quantity. (c) Does the resulting change in equilibrium match the prediction for a rightward demand shift with constant supply? Explain.

Worked Solution: (a) Apply equilibrium condition $Q_d=Q_s$: $$200-5P=10P-100$$ $$300=15P⟹P_e=\$20$$ Plug back to get $Q_e=200-5(20)=100$ chargers. Verify with supply: $10(20)-100=100$, so the solution is correct. Initial equilibrium: $P_e=\$20$, $Q_e=100$ chargers. (b) A 50-unit increase in demand gives new demand: $Q_d^{\prime }=200+50-5P=250-5P$. Set equal to unchanged supply: $$250-5P=10P-100⟹350=15P⟹P_e^{\prime }\approx \$23.33$$ $Q_e^{\prime }=250-5(23.33)\approx 133.33$ chargers. The graph is labeled with y-axis "Price per Charger ($P$)", x-axis "Quantity of Chargers ($Q$)", downward sloping D shifted right to D', upward sloping S, original equilibrium at (100, 20), new equilibrium at (~133, ~23.33). (c) Yes, the result matches the prediction: a rightward demand shift with constant supply increases both equilibrium price and equilibrium quantity. Here, price rose from $\$20$ to ~$\$23.33$, and quantity rose from 100 to ~133, which matches the expected outcome.

Question 3 (Application / Real-World Style)

After a major hurricane hit Florida, the market for bottled water sees two changes: pre-storm equilibrium was $P_e=\$2$ per bottle, $Q_e=10,000$ bottles per day. Demand increases by 6,000 bottles at every price as consumers stock up, and supply chain disruptions decrease supply by 4,000 bottles at every price. Original pre-storm functions are $Q_d=16000-3000P$ and $Q_s=1000P-2000$. What is the new equilibrium price after the hurricane, and what does this tell you about the net effect of the two changes?

Worked Solution: Adjust the functions for the shifts: new demand $Q_d^{\prime }=16000+6000-3000P=22000-3000P$. New supply $Q_s^{\prime }=1000P-2000-4000=1000P-6000$. Set equal: $$22000-3000P=1000P-6000$$ $$28000=4000P⟹P_e^{\prime }=\$7\text{ per bottle}$$ Both shifts push price upward: higher demand raises price, lower supply raises price, so the large price increase is unambiguous. In context, the hurricane caused a 250% increase in the equilibrium price of bottled water due to simultaneous higher demand and reduced supply.

8. Quick Reference Cheatsheet

9. What's Next

This topic is the core analytical foundation for almost all remaining topics in AP Microeconomics. Next you will apply this equilibrium framework to analyze government price controls, which create persistent disequilibrium in markets, then to calculate consumer and producer surplus to measure the welfare effects of market interventions. Without mastering how shifts in supply and demand change equilibrium outcomes, you will not be able to correctly evaluate the impact of policies or compare welfare across different market structures. This topic also feeds into higher-level concepts like how economic shocks impact output and prices across all market structures, from perfect competition to monopoly.

Related follow-up topics: Price Controls Consumer and Producer Surplus Price Elasticity of Demand Welfare Analysis