market equilibrium

Topics: Supply and demand, Economic equilibrium, Partial equilibrium Pages: 4 (1290 words) Published: April 25, 2014
Market Equilibrium
Equilibrium refers to a state in which all buyers and sellers are satisfied with their respective quantities at the market price. A market is said to be in equilibrium when no buyer or seller has any incentive to alter their behaviour, so that there is no tendency for production or prices in that market to change. Market equilibrium is an optimal economic position, as imbalances in quantity demanded and quantity supplied lead to shortages and surpluses .

At equilibrium, the optimal price for product

The outcome of market equilibrium is that all economic agent’s utility is maximized and everyone earns exactly what the value of what they produce and the invisible hand works its magic.

Market equilibrium is a situation in which the supply of an item is exactly equal to its demand. Since there is neither surplus nor shortage in the market, price tends to remain stable in this situation.

You cannot adjust price and quantity at the same time. You have to either fix the price to manipulate quantity or vice versa. Plus, providing this model, firms would want to supply more than consumers demanded at the price of

Wouldn’t it be more beneficial if the supplier priced the apple at $3 but supplies only 1300 apples to prevent a surplus as he will get the most money out of this?

An economic agent cannot adjust price and quantity at the same time. They have to either fix the price to manipulate quantity or vice versa. Providing the market equilibrium model, firms would want to supply more than consumers demanded at the price of $3. The entire supply curve would have to shift to the left until the market clearning price is at $3 to fulfill their condition. This is certainly not ‘ceteris paribus’. The standard demand-supply model assumes a competitive market structure. That is firms are price-takers. They are not capable of fixing price to restrict supply unless they collude or become a monopoly to which is not implied by the model. Even...
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