Market Equilibrium - A-Level Equilibrium
Market Equilibrium
Equilibrium Price and Quantity
Market Equilibrium is a situation where there is a balance in the market, where the quantity demanded by consumers equals quantity supplied by producers. It is denoted by the intersection of the demand and supply curves.
Therefore, there is both an equilibrium price and an equilibrium quantity.
The market equilibrium is determined by the demand and supply curves. Therefore, a shift in either will cause the equilibrium to change.
Excess Supply and Excess Demand
In a free market, price cannot remain above or below the equilibrium position for long.
If there is excess supply, producers are left with surplus stock. They therefore reduce prices to sell this extra stock. Demand extends and supply contracts until the equilibrium is reached.
If there is excess demand, producers do not have enough stock to cope with the high demand. Therefore, they raise prices to ration the ‘scarce’ good. Demand contracts and supply extends until the equilibrium is reached.
Market equilibrium is a state in which the quantity of goods or services supplied is equal to the quantity demanded, resulting in a stable price.
There are several factors that affect market equilibrium, including changes in consumer preferences, shifts in supply or demand curves, changes in the price of complementary or substitute goods, and changes in external factors such as government regulations.
Equilibrium price is the price at which the quantity demanded equals the quantity supplied. Equilibrium quantity is the quantity of goods or services that is bought and sold at the equilibrium price.
An increase in demand leads to an increase in both equilibrium price and quantity, while a decrease in demand leads to a decrease in both. An increase in supply leads to a decrease in equilibrium price and an increase in equilibrium quantity, while a decrease in supply leads to an increase in equilibrium price and a decrease in equilibrium quantity.
Government regulations can affect market equilibrium by changing the supply or demand curves. For example, a tax on a good will increase the price of the good, decreasing demand and shifting the demand curve to the left.
Market equilibrium is significant in economics because it represents the point at which resources are allocated efficiently. It is also a useful tool for predicting the effects of changes in supply or demand on prices and quantities.
Examples of market equilibrium include the price of gasoline, the price of housing, and the price of food. In each of these cases, supply and demand interact to determine a stable price and quantity.
A-Level students can apply the concept of market equilibrium by analyzing real-world markets and predicting the effects of changes in supply or demand on prices and quantities. They can also use the concept to understand the efficient allocation of resources and the role of government in regulating markets.
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