Market Equilibrium || explain with graphical representation || Shifts in the demand and supply curve

 

Market Equilibrium

Meaning of Market Equilibrium

The market is in equilibrium when all traders has the power to buy or sell 

as much as they choose. A situation where nobody wants to change their 

behavior. Equilibrium price is the point at which buyers are able to buy as 

much as they want and sellers can sell as much as they want. The quantity 

that is bought and sold at the equilibrium price is called the equilibrium 

quantity.                 

Market equilibrium is a major concept in economics that refers to a state in 

which the supply of a particular good or service equals the demand for that

same good or service at a specific price.  In other words, it is the point at 

which the quantity of a product that producers are willing to supply equals 

the quantity that consumers are willing to purchase at a given price.

Characteristics of Market Equilibrium

§  The quantity of a product that producers are willing to sell is equal to the

   quantity that consumers are willing to buy at equilibrium price.

§  Price stability it means a balance between supply and demand. When the 

   price is too high, demand may decrease, and when the price is too low,

   supply may decline, which can lead to price adjustments.

§  In market equilibrium, the quantity supplied and the quantity demanded 

   are in balance.

§  Economic efficiency is commonly related to market equilibrium. 

  At this point , goods are produced in the amount and at the price 

  that consumers desire, resource+ are being utilized efficiently.

  Using Graphical Representation to Determine Market Equilibrium

Interpretation

To illustrate, how supply and demand curves determines the equilibrium 

price  and quantity. This figure shows the supply and demand for apples. 

The supply and demand curve intersect shows the market equilibrium. 

The equilibrium price is $2 and the equilibrium quantity is 60 million

per month, amount that consumers are willing to purchase at that price and

the quantity that firms want to sell at that price. 

Using Math to Determine the Market Equilibrium

The equilibrium can be determined mathematically. The equilibrium price

, the point at which the quantity supplied and demanded are equal, can be

 determined using these two equations.

The relationship between the quantity demand (Q_d) and the price is 

represented  by the demand curve in equation 1.

Q_d = 180 - 40p ------(1)

The supply curve, equation 2 shows the relationship between the 

quantity supplied , Q_S, and the price

Q_S = 50 + 15p -----(2)

To determine the equilibrium quantity, Q_d = Q_s = Q, the equilibrium price,

 p. As a result, we make these two equations equal.

50 + 15p = 180 - 40p

The equilibrium price, p=2. Using the demand equation, we find that the 

equilibrium quantity is

Q = 180 – (40*2)

Q = 80

Using the supply equation, we get same the equilibrium quantity

Q = 50 + (15*2)

Q = 80

Effects of Shifts in the Demand Curve

How much consumers desire to pay for a product at a given price is shown

by a shift in the demand curve. A shift to the right indicates more desire, 

whereas a shift to the left indicates less desire. This change may have a 

direct effect on the product's price as well as its supply on the market. 

A shift in the demand curve represents a change in the quantity of a 

product people are willing to buy at various

prices.

Increase in demand shift the demand curve rightward

The demand curve shifts to the right if demand goes up. At each level of 

price, people want to purchase more of the goods. This often happens 

when a product gains popularity or desire due to positive news or a new 

trend. Thus, when more  people buy, prices typically rise. If supply can't 

keep up with demand, a shortage may occur.

Decrease in demand shift the demand curve leftward

The demand curve shifts to the left if demand declines. At all levels of price,

consumers want to purchase less of the products. This could happen as a 

result of negative information or changing trends. As a result, when 

demand decreases, prices typically increase, this could result in a surplus

when supply doesn’t adjust.

Effects of Shifts in the Supply Curve

A shift in the supply curve indicates the quantity of a product that producers

are willing to sell at various prices. Shifting to the right indicates that they 

are willing to offer more, while shifting to the left indicates they are willing

to offer less. This shift can affect both the price and the quantity of the 

product in the market. When producers are willing to sell a product in 

different quantities at different prices, the supply curve shifts to reflect 

these changes.

Increase in supply shift the supply curve rightward

The supply curve shifts to the right if supply rises. At all levels of price,

producers are willing to sell more of the product. This usually happens when

production increases or innovations in technology make the product easier 

or cheaper to produce. As a result, prices typically decline due to a greater

supply of the good, which could result a surplus if demand fails to rise.

Decrease in supply shift the supply curve leftward

The supply curve shifts to the left if the supply falls. At all levels of price, 

producers are willing to sell less of the product. Increased production costs 

or supply chain disruptions from natural disasters are two possible causes 

of this. As a result, when there is less of a product available, prices tend 

to rise. If demand doesn't decline, this leads to a shortage.