Importance of Market Equilibrium in Economics Assignment

Market Equilibrium is the most important study in Economics. In this students study how to price equilibrium works, and how well established it is. Basically, if asked what is Market Equilibrium is then the answer will be “It is a market state where the market supply is equilibrium to the demand in the market. The price equilibrium is the price of goods or any form of service when the supply and demand are equal in the market. When the market level is equilibrium, the price of any goods or services will not change unless the supply or demand is changed by an external factor. When the market is not in an equilibrium state, it forces to move to the equilibrium state.

Think the market price is higher than the equilibrium value, so there will be excess supply to the market, this means there higher supply than demand. In this position, the seller tends to lower the price of any goods or services just clear their inventories. This will slow down the production process. The lower price also indicates that more customers are buying the product or subscribing to the service, and it will reduce the supply further. In the process the increasing demand and decreasing supply unless the price becomes equal to the equilibrium price.

Why is Price Equilibrium Important?

These questions arise every year about the perfect mark on Market Equilibrium. Therefore, a complete answer is necessary. We should find more details about the definition of the market equilibrium before jump into the Perfect mark on the Price Equilibrium.

Market Equilibrium is a situation where Quantity demanded equals Quantity Supplied and there is no tendency for price to change. Equilibrium occurs when the price is such that the quantity that consumers wish to buy is exactly balanced by the quantity that firms wish to supply, again there is no tendency for price to change.

The price that brings equilibrium to the market is called Price Equilibrium. But no market ever starts from the equilibrium state, rather the price keep changing and leads towards the equilibrium point. Let, a price for some goods is charged, where the charged price, P(h) is higher than the market equilibrium price P(e). At this high price P(h), the quantity of demand Q(d) is less than the supplied quantity Q(s).

As a result, it will create a surplus of goods on the market. Supplies increased than demand in the market. If there were supplies excess then the suppliers are unable to sell their goods at the going price. When the seller found out the increasing stocks, they reduced the prices of the goods to lower the excess stocks which taking excess space in their stocks rooms. The reduced price has two effects such as reducing the prices also increases the price of the goods and the consumers have priority to buy those items at cheaper prices. Hence, Demand Quantity increases and the other one is the price of the goods is now cheaper and the seller will not receive the reward from product selling. Hence, the supplied quantity decreases the corresponding fall in price.

What Happens when Price is lower than the Equilibrium Price?

Let, the price is being paid to a particular product as a consumer, now the question is below the market reducing price P(eq). Now, below the equilibrium price P(low), the demanded quantity Q(d) is increased than the supplied quantity Q(s). As a result, it creates a shortage of goods in the market. More goods have been supplied than the demand and the consumers are now unable to buy all those goods at the current price range. Now, with many buyers few goods, the seller raising their prices to stop losing sales and cannot satisfy their potential customers. Here, it also has two effects.

One is increasing price also reduces the good amount that the customers wish to buy as now the price becomes more expensive. Hence, the demand quantity follows the rise in price.

And then the other one is the goods’ price is now more costly, and the seller now receives a much more financial reward when they are selling goods than they did before. And it will increase the seller's amount to offer sales to the consumers. Hence, the supplied quantity increases due to the rise in price.

Conclusion-

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