economics

Topics: Supply and demand, Economics, Microeconomics Pages: 4 (1276 words) Published: May 2, 2014
Q-4) what does “equilibrium price and quantity sold” mean? Are markets always in equilibrium? What happens when they are not? On the supply and demand graph, there is one point at which the supply and demand curves intersect. This point is called the market’s equilibrium. The price at this intersection is called the equilibrium price, and the quantity is called the equilibrium quantity. The equilibrium is a situation in which various forces are in balance, so in market’s equilibrium, the equilibrium price, and the quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell. At equilibrium everyone in the market has been satisfied: Buyers have bought all they want to buy, and sellers have sold all they want to sell. The actions of buyers and sellers naturally move markets toward the equilibrium of supply and demand.

Market is not always in equilibrium, because the equilibrium price and quantity depend on the position of the supply and demand curves. When some event shifts one of these curves, the equilibrium in the market changes, resulting in a new price and a new quantity exchanged between buyers and sellers. When market price is above the equilibrium price there is a surplus, so the quantity supplied exceeds the quantity demanded. Also whenever the price of product is below the equilibrium price, shortage happens, because the quantity demanded exceeds the quantity supplied. With too many buyers chasing too few goods, suppliers can take advantage of the shortage by raising the price. Hence, in both cases, the price adjustment moves the market toward the equilibrium of supply and demand. Sometimes shift in demand curve causes the both equilibrium quantity and equilibrium price to rise.

Moreover, a decrease in supply or decrease in quantity supplied, shift the supply curve which causes the equilibrium price to rise and equilibrium quantity to fall.

Note: (good to know)...
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