Market Equilibrium in Economics
Hi. Today let's talk about the 'Market equilibrium'. It is a state of balance in a market where the quantity demanded of a product or service is equal to the quantity supplied, at a given price. In other words, it is the point where the forces of demand and supply are in balance, resulting in the most efficient allocation of resources.
At this point, buyers and sellers have no incentive to alter their behaviour.
The concept of market equilibrium is an essential component of economics. It provides a framework for understanding the interaction between buyers and sellers in a market and how prices are determined.
In a competitive market, prices adjust to find the equilibrium point, and once it is achieved, it is stable in the absence of any significant changes to supply or demand.
Let me give an example, consider the market for apples. If the demand for apples increases, the equilibrium price will rise, and if the supply of apple increases, the equilibrium price will fall. At the point of equilibrium, the quantity of apples demanded by consumers is exactly equal to the quantity supplied by producers, and there is no surplus or shortage of apples.
For understanding markets, the concept of market equilibrium also has practical applications. It is used by policymakers to determine the appropriate level of intervention in markets. If a market is not in equilibrium, policymakers may use tools such as taxes, subsidies, and price controls to bring the market back into balance.
There are different ways to illustrate market equilibrium, but one of the most common is through the use of a supply and demand diagram. The intersection of the supply and demand curves represents the equilibrium price and quantity.
The concept of market equilibrium is an important tool for economists, policymakers, and businesses. It helps us to understand the dynamics of markets and how prices are determined. By achieving market equilibrium, resources are allocated efficiently, and the market can operate in a stable and predictable manner.
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@shahriar33
References of my article are below course books:
Mankiw, N. G. (2014). Principles of microeconomics.
Samuelson, P. A., & Nordhaus, W. D. (2010). Economics.
I don't believe any of this anymore.
We don't have free and open markets in anything.
And prices these days have more to do with Tariffs and Marketing.
(also, these days, supply problems)
Let us take a toaster.
Costs $1 to build in China.
And, all that can be sold, will be sold.
There is an overabundance of toaster production.
Basically, there is no supply limitation.
Still, those $1 toasters may be sold in America for $19.99 at Wallymart or $199.00 at more high end store. (yes, they are different in looks, but we are talking $1.00 vs $1.02 in manufacturing costs)
However, if the demand for toasters falls too much, they will just stop manufacturing them.
So, there is no supply demand curve.
The supply curve is a straight line that starts and stops
The demand curve is just how many people you can get to feel they need a new toaster. Price plays no part in that decision.
This is actually basic and how the market works without government intervention. In a free market economy without government intervention, You can say 'Laissez-faire'. Market equilibrium is a crucial concept in free market economics, as it helps to allocate resources efficiently based on the laws of supply and demand. Obviously, these days the market doesn't follow this, it's more complicated and includes various factors.
Here the equilibrium price and quantity are determined by the intersection of the supply and demand curves. The demand curve represents the quantity of the product that consumers are willing and able to purchase at different prices, while the supply curve represents the quantity of the product that producers are willing and able to supply at different prices.
If there is no equilibrium price the goods and services will never be sold if customers don't buy them for the high price even if the supplier wants to sell them. So, the market will not form.
At the market equilibrium price, the quantity supplied equals the quantity demanded, and there is no excess supply or demand. If the market price is above the equilibrium price, there will be a surplus of the product as producers will supply more than consumers are willing to purchase. As a result, the market price will decrease, and the quantity demanded will increase until the equilibrium price is reached. Conversely, if the market price is below the equilibrium price, there will be a shortage of the product as consumers will demand more than producers are willing to supply. As a result, the market price will increase, and the quantity supplied will increase until the equilibrium price is reached.
I know all this.
However, my looking into manufacturing and how to bring it back to America, you find that the supply and demand curves do not look at all like this.
Most things no longer follow those mathematical models any more.
There is nothing that, if you drop the price, suddenly more people in America would buy.
The supply is infinite (for all normal times)
further, the supply is from a handful of companies... maybe less. The supply curve is flat.
The demand curve doesn't really change if you change the price. Except if you slap "SALE" on it. Then, with even an increase in price, it seems to sell more, for a short time.
Are you talking about monopoly?
By the way, I am a student of Economics, studying at the Department of Economics, Rajshahi University, Bangladesh. 😅😅 I love to talk about economics.
According to the law of demand, one of the most fundamental concepts in economics and is used to explain a wide range of phenomena, from the behaviour of individual consumers to the functioning of entire markets.
It states that all other things being equal, the quantity demanded of a good or service decreases as its price increases, and vice versa. In other words, when the price of a good or service rises, consumers will typically buy less of it, and when the price falls, consumers will typically buy more of it.
So, I can say price actually affects the demand in the market.
And i can say, from real world evidence, that price is messed up.
I have seen demand go up with price going up.
I have seen drop in demand as price goes down.
And the supply curve is not a smooth curve.
There is almost no such thing as breaking into a market.
Between retailers having exclusive negotiations, and all toaster manufacturers owned by the CCP, you really do have a monopoly in effects, and a monopsony.
Like i said at the beginning, i no longer believe in the supply/demand curves as explained in Economics.
So, have you looked into Austrian Economics?
Yes, I know some of the specialities of Austrian economics is characterized by a strong commitment to individualism, subjectivism, and free markets. It has been influential in shaping economic and political thought in many countries, and continues to be a major force in contemporary economic discourse. It recognizes that economic decisions are made by individuals based on their own subjective values, preferences, and expectations.
Have read the book 'Human Action" by Ludwig von Mises (1949)?
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