➡️ Market equilibrium is a state of balance in a market where the quantity of goods supplied is equal to the quantity of goods demanded. This occurs when the price of a good is such that it is neither too high nor too low for buyers and sellers.
➡️ Market equilibrium is an important concept in economics because it helps to explain how prices are determined in a market economy. It also helps to explain why prices may change over time, as the balance between supply and demand shifts.
➡️ Market equilibrium is also used to analyze the effects of government policies on the economy, such as taxes, subsidies, and regulations. By understanding how market equilibrium works, economists can better understand how different policies may affect the economy.
What is market equilibrium and how is it determined?
Market equilibrium is the point where the quantity demanded by consumers is equal to the quantity supplied by producers, resulting in a stable price. It is determined by the intersection of the demand and supply curves.
What happens when there is a shortage or surplus in the market?
A shortage occurs when the quantity demanded exceeds the quantity supplied, resulting in an increase in price. A surplus occurs when the quantity supplied exceeds the quantity demanded, resulting in a decrease in price. In both cases, the market will eventually adjust to reach equilibrium.
How do changes in demand and supply affect market equilibrium?
An increase in demand will shift the demand curve to the right, resulting in a higher equilibrium price and quantity. A decrease in demand will shift the demand curve to the left, resulting in a lower equilibrium price and quantity. Similarly, an increase in supply will shift the supply curve to the right, resulting in a lower equilibrium price and higher quantity. A decrease in supply will shift the supply curve to the left, resulting in a higher equilibrium price and lower quantity.