Market equilibrium

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Market equilibrium

Market Equilibrium - in microeconomics the situation in a competitive market when the demand curve crosses the supply curve, setting the price at equilibrium and the size of the transaction in equilibrium. In such a situation, the market has been cleared, ie the volume of demand equals supply. This is shown in the figure below.

If the price is higher than the equilibrium P1, there is a surplus of supply over demand and the market has reached equilibrium, the price has to fall. The lower prices correspond to the increase in demand and the decrease in supply, until they are equalized. This situation exists when the regulator sets a minimum price. If, however, the price is lower than the price in equilibrium, P2, then the volume of demand is greater than the volume of supply, and there is a shortage in the market. The return to equilibrium is possible after the price increase. The higher prices correspond to a decrease in the volume of demand and an increase in the volume of supply until they are equalized. This situation occurs when the regulator establishes a price cap.

Market equilibrium is stable, because no one pays trade at prices other than the price of equilibrium. Equity in a single market is a partial equilibrium. If all markets are cleared at the same time, overall equilibrium is achieved. Bibliography

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