Market Equilibrium

Market Equilibrium

Definition: Market equilibrium occurs when the supply and demand curves intersect, resulting in no excess supply or demand for a particular good or service.

Characteristics:

• The quantity supplied equals the quantity demanded (Qs = Qd)
• The market is in a state of rest, with no tendency for change
• There is no excess supply or demand
• The price and quantity traded are stable

How to Achieve Equilibrium:

1. Movement Along the Supply Curve: When the price changes, the quantity supplied changes, but the supply curve remains the same.
2. Movement Along the Demand Curve: When the price changes, the quantity demanded changes, but the demand curve remains the same.
3. Shifts in Supply and Demand Curves: Changes in external factors (e.g., technology, consumer preferences) cause the supply or demand curve to shift.

Types of Equilibrium:

• Short-Run Equilibrium: Temporary equilibrium, where supply and demand curves intersect.
• Long-Run Equilibrium: Permanent equilibrium, where the firm produces at minimum average cost.

Importance of Market Equilibrium:

• Efficient Allocation of Resources: Equilibrium ensures that resources are allocated to their most valuable uses.
• Price Stability: Equilibrium prices reflect the true value of the good or service.
• Social Welfare: Equilibrium maximizes social welfare by allocating goods and services to those who value them most.

Market Equilibrium

• Market equilibrium occurs when the supply and demand curves intersect, resulting in no excess supply or demand for a particular good or service.

Characteristics of Market Equilibrium

• The quantity supplied equals the quantity demanded (Qs = Qd)
• The market is in a state of rest, with no tendency for change
• There is no excess supply or demand
• The price and quantity traded are stable

Achieving Market Equilibrium

Movement Along the Supply Curve

• When the price changes, the quantity supplied changes, but the supply curve remains the same

Movement Along the Demand Curve

• When the price changes, the quantity demanded changes, but the demand curve remains the same

Shifts in Supply and Demand Curves

• Changes in external factors (e.g., technology, consumer preferences) cause the supply or demand curve to shift

Types of Market Equilibrium

• Short-Run Equilibrium: Temporary equilibrium, where supply and demand curves intersect
• Long-Run Equilibrium: Permanent equilibrium, where the firm produces at minimum average cost

Importance of Market Equilibrium

• Efficient Allocation of Resources: Equilibrium ensures that resources are allocated to their most valuable uses
• Price Stability: Equilibrium prices reflect the true value of the good or service
• Social Welfare: Equilibrium maximizes social welfare by allocating goods and services to those who value them most