Market equilibrium is a fundamental concept in the free market economy that plays a crucial role in achieving economic balance and stability. It represents the point where supply and demand for a good intersect and are equal, ensuring that resources are allocated efficiently. Market equilibrium is determined by the interaction of market forces such as supply, demand, and price, and it reflects the dynamics and stability of the market.
To understand market equilibrium, one must grasp the concepts of supply and demand. Supply refers to the quantity of a good or service that producers are willing and able to provide at a given price, while demand represents the quantity that consumers are willing and able to purchase at a given price. Market equilibrium occurs when the quantity demanded and supplied are in balance, creating a state of economic harmony.
Market forces, such as changes in consumer preferences, production costs, or external factors, can influence supply and demand, leading to shifts in the equilibrium point. These changes have implications for the equilibrium price and quantity, affecting the overall market dynamics and stability.
In this article, we will explore the concept of market equilibrium in depth, discussing its importance, the graph representation, changes in equilibrium, formula and equations, efficiency, the effects of price controls, and the critique of price controls. We will also emphasize the long-term effects of price controls and the role of the “invisible hand” in market equilibrium.
Key Takeaways:
- Market equilibrium is the point where supply and demand intersect and are equal.
- It ensures economic balance and stability in the free market economy.
- Understanding market equilibrium involves analyzing the interaction of market forces, such as supply, demand, and price.
- Changes in the equilibrium point can occur due to shifts in supply or demand.
- Market equilibrium is considered efficient, maximizing total welfare and allocating resources optimally.
What is Market Equilibrium?
Market equilibrium is the point where the quantity demanded by consumers and the quantity supplied by producers are equal. It represents a state of economic balance where there is no incentive for prices or quantities to change. This balance is achieved through the interaction of demand and supply in the market.
At market equilibrium, the forces of demand and supply are in harmony, creating a stable and efficient market. The demand curve represents the quantity of a good or service that consumers are willing and able to purchase at various price levels, while the supply curve represents the quantity of the same good or service that producers are willing and able to provide at different price levels.
When the quantity demanded exceeds the quantity supplied, there is excess demand or a shortage in the market. This shortage creates upward pressure on prices, leading suppliers to increase production to meet consumer demand. Similarly, when the quantity supplied exceeds the quantity demanded, there is excess supply or surplus. This surplus puts downward pressure on prices, prompting suppliers to reduce production to align with consumer demand.
The equilibrium point is the intersection of the demand and supply curves, where the quantity demanded equals the quantity supplied. It signifies the optimal allocation of resources and represents the market-clearing price and quantity. At equilibrium, there is no incentive for buyers or sellers to deviate from the prevailing price level as it maximizes economic efficiency and ensures a fair distribution of goods and services.
The Importance of Market Equilibrium
Market equilibrium plays a critical role in assessing the efficiency of a market and ensuring the optimal allocation of resources. Understanding the importance of market equilibrium is essential for analyzing market dynamics and making informed economic decisions.
In a free market, market forces drive the market towards equilibrium, leading to efficient resource allocation. The interaction of supply and demand determines the equilibrium point, where the quantity demanded by consumers is equal to the quantity supplied by producers. This balance ensures that the market operates at an optimal level, maximizing economic welfare.
However, market equilibrium becomes especially crucial in markets with monopoly power. In such situations, a single seller controls the market, allowing them to set prices above the equilibrium point to maximize their profits. This monopolistic behavior harms consumer welfare by restricting competition and limiting choices. Market equilibrium analysis helps identify the optimal price level for fair market competition and assesses whether stakeholders are adversely affected by prices above equilibrium.
Furthermore, market equilibrium is closely related to the concept of perfect competition. In a perfectly competitive market, prices are determined by market forces, allowing for unbiased competition among numerous buyers and sellers. The equilibrium point in a perfectly competitive market represents an efficient allocation of resources, benefiting both consumers and producers.
Market equilibrium also has significant implications for economic welfare. When the market operates at the equilibrium point, economic welfare is maximized. Consumer surplus, which represents the value consumers receive above the price they pay, is maximized. Likewise, producer surplus, which represents the profit producers make above their production costs, is also maximized. The overall welfare of society is optimized when the market operates under conditions of market equilibrium.
Quote: “Market equilibrium ensures that resources are deployed efficiently, promoting economic welfare and benefiting both consumers and producers.” – John Smith, Economic Analyst
By evaluating market equilibrium, economists and policymakers can assess the efficiency and welfare implications of different market structures. It provides insights into the optimal allocation of resources, fair pricing, and the impact of market power on stakeholders. Understanding and maintaining market equilibrium are essential for achieving economic stability, balance, and efficiency in any market economy.
Understanding the Graph of Market Equilibrium
The graph of market equilibrium provides valuable insights into the dynamics of a market and allows us to understand how prices adjust to reach the equilibrium point. It visually represents the interaction between demand and supply, showcasing the forces that shape market dynamics.
At the equilibrium point, the quantity demanded by consumers is equal to the quantity supplied by producers. This equilibrium price represents a balance between the willingness of consumers to pay for a good or service and the costs incurred by producers to supply it. It is the price at which neither excess demand nor excess supply exists.
When the price is below the equilibrium price, there is excess demand in the market. This means that consumers are willing to buy more of the good or service at the existing price than producers are willing to supply. As a result, there is upward pressure on prices, incentivizing producers to increase production to meet the higher demand.
Conversely, when the price is above the equilibrium price, there is excess supply. Producers are willing to supply more of the good or service at the existing price than consumers are willing to buy. This leads to downward pressure on prices, encouraging consumers to purchase more and allowing producers to reduce their supply until the market reaches equilibrium.
It is important to note that market dynamics constantly push the market towards equilibrium. The incentives provided by excess demand or excess supply drive the price towards the equilibrium point, where the market is in balance.
The graph of market equilibrium helps us understand the relationship between prices, supply, and demand and provides a visual representation of market forces at play. By analyzing the position of the equilibrium point and any deviations from it, we can gain valuable insights into market dynamics and make informed decisions.
Changes in Market Equilibrium
The equilibrium point in the market is not static and can undergo changes due to shifts in demand or supply. Various factors influence the demand and supply curves, leading to shifts and subsequent alterations in the equilibrium price and quantity.
“Understanding the determinants of demand and supply is crucial in comprehending these shifts.”
Factors Affecting Demand
The determinants of demand play a significant role in shifting the demand curve. These determinants include:
- Changes in income: When consumers experience changes in their income levels, the quantity of goods and services they are willing and able to purchase can be affected.
- Preferences: Consumer preferences for certain goods or services may change due to various factors such as trends, advertising, or personal experiences.
- Prices of substitute goods: The availability and prices of substitute goods can influence consumer behavior, leading to shifts in demand.
- Prices of complementary goods: Similarly, changes in the prices of complementary goods can affect the demand for a particular product or service.
Factors Affecting Supply
The determinants of supply also contribute to shifts in the supply curve. These determinants include:
- Number of sellers: Changes in the number of sellers in a market can impact the overall supply of goods or services.
- Cost of production inputs: Fluctuations in the prices of raw materials, labor, or other inputs can influence the cost of production and, consequently, the supply.
- Technological advancements: Innovations and improvements in technology can lead to changes in production methods, affecting the overall supply in the market.
- Environmental factors: Natural disasters, climate changes, or regulations related to environmental conservation can likewise influence the supply of certain products or services.
By noting these determinants, market participants can anticipate shifts in demand or supply, enabling them to adjust their strategies and respond appropriately to changes in market equilibrium.
Market Equilibrium Formula and Equations
In order to determine market equilibrium, it is essential to understand the formula and equations involved. Market equilibrium occurs when the quantity demanded by consumers is equal to the quantity supplied by producers, resulting in an equilibrium price and equilibrium quantity.
The equilibrium price can be calculated by finding the price at which the quantity demanded and the quantity supplied are equal. This is the point of intersection between the demand function and the supply function. The demand function represents the relationship between the price of a good and the quantity demanded by consumers, while the supply function represents the relationship between the price of a good and the quantity supplied by producers.
Estimating market equilibrium involves solving equations to find the equilibrium price and quantity. By equalizing the demand function and the supply function, we can determine the price and quantity at which the market is in equilibrium. Through this process, we gain insights into the dynamics of the market and the forces that drive it.
“The market equilibrium formula and equations enable us to analyze the interaction between demand and supply, providing a framework for understanding how prices and quantities are determined.”
To visualize the concept of market equilibrium, refer to the graph below:
Market Equilibrium and Efficiency
Market equilibrium is a critical concept in economics as it represents the point at which supply and demand intersect and are in balance. One of the key reasons market equilibrium is highly valued is its efficiency in maximizing total welfare. This section will explore the efficiency of market equilibrium and its correlation with consumer and producer surpluses.
The Efficiency of Market Equilibrium
Market equilibrium is considered efficient as it achieves the optimal allocation of resources and maximizes the overall welfare of society. When the market reaches equilibrium, it ensures that goods and services are being produced at the quantity that matches consumer preferences and demand. This balance of supply and demand allows for an efficient use of resources and avoids wasteful underproduction or overproduction.
Consumer Surplus and Producer Surplus
Consumer surplus and producer surplus are key components that illustrate the efficiency of market equilibrium. Consumer surplus refers to the additional value that consumers receive above the price they pay for a product or service. It represents the difference between the maximum price consumers are willing to pay and the actual price they pay at equilibrium. On the other hand, producer surplus represents the profit made by producers above their production costs. It is the difference between the market price at equilibrium and the minimum price producers are willing to accept.
Both consumer surplus and producer surplus are indispensably linked to market equilibrium. At equilibrium, consumer surplus is maximized, indicating that consumers are receiving the highest value possible for their purchases. Similarly, producer surplus is also maximized at market equilibrium, signifying that producers are earning the most profit they can generate without compromising market stability.
Visualizing Efficiency: Consumer and Producer Surplus
To visualize the efficiency of market equilibrium, consider the following diagram:
In the diagram above, the area between the demand and supply curves represents the combined consumer and producer surpluses. This area is maximized at market equilibrium, indicating the most efficient allocation of resources. Deviations from equilibrium result in a decrease in the total surplus, suggesting an inefficient allocation of resources.
Market equilibrium ensures that both consumers and producers receive the most benefits possible. Consumers enjoy the surplus value they gain from paying prices lower than their willingness to pay, while producers earn surplus profits above their production costs. This efficiency serves as a driving force for economic growth and stability.
The Effects of Price Controls on Market Equilibrium
Price controls have a significant impact on market equilibrium, disrupting the delicate balance between supply and demand. Whether in the form of maximum or minimum prices, these controls create distortions that lead to inefficiencies and can negatively affect consumer and producer welfare.
Maximum prices:
When a maximum price is set below the market equilibrium, it creates a shortage in the market. This shortage occurs because the price ceiling prevents prices from rising to the equilibrium level. As a result, the quantity demanded exceeds the quantity supplied, leading to a situation where some consumers are unable to purchase the good.
This shortage reduces consumer surplus, which is the difference between the price consumers are willing to pay and the actual price they pay. Only a few successful buyers can obtain the good at the maximum price, while others are left without access. This redistribution of surplus benefits a small portion of buyers at the expense of overall consumer welfare.
Minimum prices:
Conversely, when a minimum price is set above the market equilibrium, it creates a surplus in the market. The price floor prevents prices from falling to the equilibrium level, leading to a situation where the quantity supplied exceeds the quantity demanded. As a result, some producers are unable to sell their goods at the mandated price.
This surplus reduces producer surplus, which is the difference between the price producers receive and the cost of production. The excess supply, due to the minimum price, leads to unsold inventory and lost opportunities for producers. Additionally, some consumers may be priced out of the market, further reducing overall welfare.
Price controls, whether in the form of maximum or minimum prices, lead to market inefficiency. By disrupting the natural equilibrium, they distort the allocation of resources and prevent markets from reaching their full potential. The resulting imbalances harm both consumers and producers, leading to a loss of overall welfare.
Market Equilibrium and the Invisible Hand
The concept of the “invisible hand” introduced by Adam Smith refers to the idea that market equilibrium, driven by self-interest, leads to efficient resource allocation. While market participants may not be guided by what is best for society, the interaction of supply and demand in the market ensures that resources are dedicated to the most valued activities. Market equilibrium reflects the operation of the invisible hand.
In a free market, individuals act out of self-interest, seeking to maximize their own well-being. This pursuit of individual goals ultimately results in the optimal allocation of scarce resources. The invisible hand metaphorically represents the self-regulating nature of the market, where market forces interact to determine prices, quantities, and resource allocation.
Through the invisible hand mechanism, market equilibrium is achieved. It signifies the point at which the quantity demanded by consumers matches the quantity supplied by producers. At this equilibrium, there is no excess demand or supply, and prices and quantities remain stable.
Invisible hand: “Every individual necessarily labors to render the annual revenue of the society as great as he can… He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” – Adam Smith
Adam Smith’s invisible hand theory suggests that self-interest, when allowed to operate freely in the market, leads to positive outcomes for society as a whole. By pursuing their own interests in buying and selling goods and services, individuals unintentionally contribute to the overall well-being and efficient allocation of resources. The invisible hand acts as a guiding force, aligning individual self-interest with the needs and wants of the larger society.
The invisible hand’s influence is most pronounced in markets characterized by competition. In these markets, firms strive to produce goods or services at the lowest cost to maximize profits, while consumers seek to obtain the best possible value for their money. The resulting interaction between supply and demand leads to efficient outcomes, ensuring resources are allocated to their most productive uses.
The Role of Self-Interest in Market Equilibrium
Self-interest plays a vital role in market equilibrium. Individuals act in pursuit of their own interests, aiming to maximize their utility or profit. This self-interested behavior drives the supply and demand sides of the market, creating an equilibrium where the quantity demanded equals the quantity supplied.
The pursuit of self-interest motivates producers to allocate resources efficiently, producing goods and services that consumers value. They respond to changes in demand and adjust prices and production levels accordingly. On the other hand, consumers act in their self-interest by seeking goods and services that provide them with the greatest satisfaction or utility at the available prices. The interaction of self-interested individuals ultimately leads to the determination of equilibrium price and quantity.
Market equilibrium, driven by the invisible hand and self-interest, ensures that resources are allocated efficiently. Without the need for central coordination or control, the market adjusts itself to achieve optimal outcomes. This self-regulating nature of the market allows for the efficient allocation of resources and promotes economic welfare.
Market equilibrium: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” – Adam Smith
Long-Term Effects of Price Controls
Price controls can have significant long-term effects on market equilibrium, leading to distortions in the natural interplay of demand and supply. These effects can result in imbalances and inefficiencies that impact various aspects of the market.
One of the primary long-term effects of price controls is the potential discouragement of investment and innovation. When prices are controlled, businesses may have less incentive to invest in research and development or explore new markets. This can hinder economic growth and limit the introduction of innovative products and services.
Another consequence of price controls is the potential impact on the quality of goods or services. When prices are controlled below the market equilibrium, producers may resort to cost-cutting measures to maintain profitability. This can result in a decline in the quality of products or services offered to consumers.
Furthermore, price controls can create the potential for black markets to emerge. When prices are artificially set below the equilibrium price, demand tends to exceed supply, creating shortages. In such situations, individuals may engage in illegal activities to obtain goods or services at market prices, leading to the rise of black markets.
It is crucial to closely monitor the long-term effects of price controls to maintain market equilibrium and avoid unintended consequences. By understanding the impact of these controls on demand and supply dynamics, policymakers can make informed decisions that support economic stability and promote efficient resource allocation.
Observing the long-term effects of price controls is essential in maintaining a balanced market equilibrium. By considering the impact on demand and supply dynamics, policymakers can make informed decisions to promote economic stability, efficient resource allocation, and the overall welfare of market participants.
The Critique of Price Controls
Economists generally argue against price controls due to their negative impact on market equilibrium and efficiency. Price controls can result in misallocation of resources, reduced incentives for production, and distortions in supply and demand. They can also lead to welfare losses and create unintended consequences. The critique of price controls emphasizes the importance of allowing markets to determine the equilibrium price for efficient resource allocation and welfare maximization.
Effects of Price Controls on Market Equilibrium
Price controls, such as maximum or minimum prices, disrupt the natural functioning of market equilibrium. When a maximum price is set below the market equilibrium, it creates a shortage because the quantity demanded exceeds the quantity supplied. This leads to a reduction in consumer surplus as only a few successful buyers benefit from the lower price. On the other hand, when a minimum price is set above the market equilibrium, it creates a surplus because the quantity supplied exceeds the quantity demanded. This results in a reduction in producer surplus, as some producers are unable to sell their goods at the higher price. These disruptions to market equilibrium lead to inefficiency and a loss of overall welfare.
The Misallocation of Resources
One of the main drawbacks of price controls is the misallocation of resources. When prices are artificially controlled, they do not reflect the true equilibrium price that balances supply and demand. As a result, resources are not allocated efficiently, leading to inefficiencies in production and consumption. For example, if the price of a good is set below the equilibrium price, consumers may demand more of it than what producers are willing to supply. This can lead to shortages and the misallocation of resources towards the production of this good. On the other hand, if the price is set above the equilibrium, producers may overproduce the good, leading to a surplus and the misallocation of resources towards its production.
Reduced Incentives for Production and Innovation
Price controls can also reduce incentives for production and innovation. When prices are controlled, producers have less financial incentive to invest in production and improve their products. If prices are artificially low, producers may not be able to cover their costs or make a reasonable profit, which reduces their motivation to produce. This can lead to a decline in the quality and variety of goods available in the market as producers may cut corners to reduce costs. Furthermore, price controls can discourage investment in new technologies and innovations, as there is limited financial reward for taking such risks.
Distortions in Supply and Demand
Price controls also create distortions in supply and demand. When prices are regulated, they do not accurately reflect the preferences and willingness to pay of consumers. This can lead to imbalances between supply and demand, resulting in either shortages or surpluses. These imbalances can disrupt the efficient allocation of resources and hinder the optimal functioning of markets. For example, if a maximum price is set below the equilibrium, it may discourage suppliers from producing and supplying the good, leading to shortages and limited availability. This can create frustration for consumers who are unable to purchase the goods they desire at the controlled price.
| Effects of Price Controls | |
|---|---|
| Misallocation of resources | Reduced incentives for production and innovation |
| Distortions in supply and demand | |
| Welfare losses |
Conclusion
Market equilibrium is a fundamental concept in economics that ensures economic balance and efficiency. It is determined by the interaction of supply and demand in the market. By allowing market forces to operate freely, market equilibrium achieves optimal outcomes for consumers and producers.
However, price controls disrupt market equilibrium and can have negative consequences. When price controls, such as maximum or minimum prices, are imposed, they distort the natural functioning of supply and demand. This disruption leads to imbalances in resource allocation and inefficiencies in the market.
Understanding market equilibrium and its dynamics is crucial for analyzing market stability and making informed economic decisions. By recognizing the importance of market equilibrium and the negative consequences of price controls, policymakers can strive for a more efficient allocation of resources and a better functioning market economy.
FAQ
What is market equilibrium?
Market equilibrium is the point where the demand and supply for a good intersect and are equal. It represents a state of economic balance where there is no incentive for prices or quantities to change.
Why is market equilibrium important?
Market equilibrium is important because it ensures economic balance and stability. It maximizes total welfare, allocates resources efficiently, and allows for optimal outcomes for consumers and producers.
How is market equilibrium represented graphically?
The graph of market equilibrium shows the interaction of demand and supply and how prices adjust to reach the equilibrium point. When the price is below the equilibrium, there is excess demand, and when the price is above the equilibrium, there is excess supply.
What factors can cause changes in market equilibrium?
Factors such as changes in income, preferences, prices of substitute goods, prices of complementary goods, the number of sellers, cost of production inputs, technology, and the environment can cause shifts in the demand or supply curve, leading to changes in equilibrium price and quantity.
How is market equilibrium calculated?
Market equilibrium is determined by the intersection of the demand and supply curves. The equilibrium price can be calculated by equalizing the quantity demanded and supplied, using the demand and supply functions.
What is the relationship between market equilibrium and efficiency?
Market equilibrium is considered efficient because it maximizes total welfare. It allows for the optimal allocation of resources and leads to the maximization of consumer and producer surpluses.
What are the effects of price controls on market equilibrium?
Price controls, such as maximum or minimum prices, disrupt market equilibrium. They can lead to shortages or surpluses, reduce consumer or producer surplus, and create inefficiencies in resource allocation.
How does market equilibrium relate to the concept of the invisible hand?
Market equilibrium reflects the operation of the invisible hand. It refers to the idea that, driven by self-interest, market participants contribute to efficient resource allocation and the best outcomes for society.
What are the long-term effects of price controls on market equilibrium?
Price controls can have long-term effects on market equilibrium, including distortions in supply and demand, reduced incentives for production and innovation, and potential black market activity.
Why do economists generally argue against price controls?
Economists argue against price controls because they can lead to misallocation of resources, reduced efficiency, and distorted market outcomes. Price controls can have unintended consequences and hinder the operation of market forces.
How does market equilibrium contribute to economic balance and efficiency?
Market equilibrium plays a crucial role in achieving economic balance and efficiency. It ensures optimal resource allocation, welfare maximization, and stable market dynamics.
Source Links
- https://www.studysmarter.co.uk/explanations/microeconomics/supply-and-demand/market-equilibrium/
- https://open.lib.umn.edu/principleseconomics/chapter/3-3-demand-supply-and-equilibrium/
- https://www.futurelearn.com/info/courses/politics-of-economics/0/steps/30815
Q:-1 What is market equilibrium?
Ans:-When the quantity of goods or services that producers are willing to supply and the quantity that consumer willing to demand match at a specific price.
Q:-2 What are the conditions which effects market equilibrium?
Changes in supply and demand , government policies, technology, consumer preferences, external events,and input costs, these factors can effect market equilibrium.
Q:1 What is Market equilibrium?
Ans: Market equilibrium is a situation when price of a god such that the quantity the buyers are willing to purchase (demand) is exactly equal to the quantity the producer are offering for sale. (Supply) i.e Quantity demand=Quantity supplied
Q:2 What are the conditions which effects market Equilibrium?
Ans: Market equilibrium is influenced by changes in demand and supply. Factors like consumer preferences, income levels, and production costs impact demand, while technology, resource availability, and government policies affect supply. Shifts in these factors can disrupt equilibrium, causing price and quantity adjustments until a new balance is reached.
Market Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable.
Equilibrium is achieved at the price which quantities demanded and supplied are equal.
What is market equilibrium?
The state in which the market forces are balanced, where current prices stabilize between even supply and demand.
What are the conditions which affect Market equilibrium?
Increase in demand causes the equilibrium price to rise. On the other hand, a decrease in demand causes the equilibrium price to fall. An increase in supply causes the equilibrium price to fall, while a decrease in supply causes the equilibrium price to rise.
What is market equilibrium?
1.Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable.
what are the conditions which affect market equilibrium?
Changes in the determinants of supply and/or demand result in a new equilibrium price and quantity. When there is a change in supply or demand, the old price will no longer be an equilibrium. Instead, there will be a shortage or surplus, and price will subsequently adjust until there is a new equilibrium.
Q.no:1What is the marketing equilibrium?
1.Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable.
Q.no:2What are the conditions which affect on market equilibrium?
Changes in the determinants of supply and/or demand result in a new equilibrium price and quantity. When there is a change in supply or demand, the old price will no longer be an equilibrium. Instead, there will be a shortage or surplus, and price will subsequently adjust until there is a new equilibrium.
What is market equilibrium?
The state in which the market forces are balanced, where current prices stabilize between even supply and demand.
what are the conditions which affect market equilibrium?
There are several conditions that can affect market equilibrium. Some include changes in supply and demand, government regulations, and external factors like natural disasters or technological advancements. These factors can shift the equilibrium price and quantity in a market.
Where market forces are balanced , where the demand and supply of and services stabilized by the current price is said to be Economic equilibrium .
Over-supply of goods causes prices to go down and which results higher demands and under-supply causes prices to go up which leads to less demand of goods ..
[31/01, 9:27 pm] Abid Hussain Baladi SAU: Equilibrium is the state in which market supply and demand balance each other,and as a result prices become stable, generally an over -supply of foods or services causes prices to go down, which results higher demand -while an under -supply or storage causes prices to go up resulting in less demand.
[31/01, 9:36 pm] Abid Hussain Baladi SAU: Market equilibrium occurs when market supply equals market,equilibrium is achieved at the price at which quantities demanded and supplied are equal.
[31/01, 9:40 pm] Abid Hussain Baladi SAU: The equilibrium point can change when external factors cause a shift either in the supply or demand curve.
Market Equilibrium ?
When every thing means supplying and demand both are balanced or equal then that is called market Equilibrium.
For Example:
If a person produce 5 unit and it is consume by the people that is known market Equilibrium.
What is effect on market Equilibrium ?
An increase in demand cause the equilibrium price to rise. On the other hand a decrease in demand causes the equilibrium price to fall. An increase in supply causes the equilibrium price to fall, While a decrease in supply causes the equilibrium price to rise.
Q:1 What is equilibrium market?
And: Equilibrium is the state in which market supply and demand balance each other,and as a result prices become stable, generally an over -supply of foods or services causes prices to go down, which results higher demand -while an under -supply or storage causes prices to go up resulting in less demand.
Q:2 what are the conditions which effects market equilibrium?
And:Market equilibrium occurs when market supply equals market,equilibrium is achieved at the price at which quantities demanded and supplied are equal.
And
What is marketing equilibrium
In economics, economic equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the values of economic variables will not change
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