What is Market Equilibrium?

Economy and Finance

What is Market Equilibrium?

29 Aug 2023 Zinkpot 183

A market equilibrium refers to a situation in which, at market price, the quantity demanded of a commodity equals the quantity supplied of the commodity.
For example, if the sellers of notebooks are willing to sell 500 units at a price of Rs 50 each and the buyers are willing to buy 500 units of notebooks at that price, this market would be in equilibrium at the equilibrium price of Rs.50 and at the quantity of 500 notebooks.
The equilibrium price, therefore, is the price at which the consumers are willing to purchase the same quantity of a commodity, which producers are willing to sell and the amount that is bought and sold at the equilibrium price is called the equilibrium quantity.
Changes in the supply and demand of a product often disturb the equilibrium. Whenever there is a change in supply or demand, the old price will no longer be in equilibrium. Instead, there will be a shortage or surplus, and the price will subsequently adjust until there is a new equilibrium.
For example, supposedly, there is a sudden high demand for notebooks, there will be more people who want to buy notebooks at all possible prices, causing demand to increase. At the original price, there will be a shortage of notebooks, signaling sellers to increase the price until the quantity supplied and the quantity demanded are once again equal.
An 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.
For the diagrammatic representation of market equilibrium, the equilibrium is reached at a point where the demand curve intersects the supply curve.
Market equilibrium is often affected by competitive factors. Consumers may opt for a competitive company for two main reasons, quantity or price. The consumer may opt for a competitive if the competitor is able to give a better service at a better price than what is already available.
Strategic factors also play an important role in determining the market equilibrium. Strategies can also influence prices, but they can either be from a competitor or from within the company. For instance, if there is a change in management, or there is any expansion within the company, it can affect prices.
Even a small change made in the prices of one of the companies can disrupt the equilibrium whether it be from within a company as well as circumstances that are external to the market.