A surplus will occur if the firm sets price above equilibrium and a shortage occurs if a firm sets price below equilibrium. In an efficient market price exhibits a strong tendency towards equilibrium because firms will raise price when shortages occur and lower price when surpluses occur. Shifts in demand are caused by changes in taste, income, prices of other goods, expectations and the number of consumers. Equilibrium price increases when demand shifts right. Shifts in supply are caused by changes in technology, factor costs, profitability of alternative opportunities, expectations and the number of sellers.
Equilibrium price decreases when supply shifts right.
When public policy causes an interference with equilibrium price the market will exhibit surpluses or shortages. Rent Control will produce a housing shortage if the rent ceiling is below the equilibrium rent level. Unemployment is measured by the excess of Qs over Qd at the minimum wage of Pm. Public goods are those whose benefits are non-exclusive. Everyone receives them whether they have paid for the public good or not.