Market Equilibrium is the point at which total supply and demand within a market are equal, shown by the intercept of a demand curve and a supply curve when both are graphed on the same axis. The price at this point is market equilibrium price and the quantity is market equilibrium quantity. Within most markets market equilibrium will naturally be reached. For everything that is supplied to be consumed and for the market to be "cleared," price must be equal to or lower than equilibrium price.
Excess Demand and Supply.
If price is set below equilibrium price, supply will decrease and demand will increase, as stated in the laws of demand and supply. This means there is excess demand compared to supply and a shortage will develop because there is not enough supply to meet demand. Consumers will be willing to pay more and a black market may develop, but market price will eventually rise to market equilibrium price.
If a price is set above equilibrium price, supply will increase and demand will decrease, as stated in the laws of demand and supply. This will cause excess supply and a surplus of goods and services supplied will develop that consumers do not demand. The market will not be "cleared" and stock will remain, so prices will be decreased by producers to sell this surplus stock so the market can be "cleared."
If a price is set above equilibrium price, supply will increase and demand will decrease, as stated in the laws of demand and supply. This will cause excess supply and a surplus of goods and services supplied will develop that consumers do not demand. The market will not be "cleared" and stock will remain, so prices will be decreased by producers to sell this surplus stock so the market can be "cleared."
No comments:
Post a Comment