Market_Equilibrium

Market equilibrium is the point in which industry offers goods at the price consumers will consume without creating a shortage or a surplus of goods (McConnell, 2009). Shortages drive up the costs of goods while surpluses drive the cost of goods down, finding the balance in the process is market equilibrium. The main goal of the market equilibrium is to get match the common intention of consumer and seller in the market. Therefore, this process plays a role in the consumer and seller agreement and confidence in each other. The process of market equilibrium impacts (McConnell, 2009): • Equilibrium price and quantity of products • Changes and shift in demand of the products • Changes and shift in the supply of the products It should be understood that the equilibrium price and quantity can be referred to as the total intersection of price and quantity (McConnell, 2009). Both price and quantity would affect the shift of the curve. The change in the demand of the product affects the price and quantity because if the demand is higher than the price will be higher and the production in quantity will be higher as well. The supply will also have an impact on the equilibrium level because if the product supply increased then the price will stay at the low however if the supply level decreased the price will go up due to the demand of the product. A real life example of market equilibrium would be shown in the experience at the music store while buying music CD. One of my favorite artist’s CD price was $15 until last week but currently the price has increased to $22. The sudden price change was a result of the demand of the artist being in town recently. The change in demand of the CD was higher this week and the supply was only 50 in quantity, which producer thought to be enough for the market demand. The same CD was requested by more than 50 people, and increase in the demand prompt to increase the price. Thus the affect of the demand change affected the equilibrium, structure of the price and quantity. The same affect can be seen in the supply. The supply of the same artist was 70 CDs and only 50 people have requested the CD, which results in a decrease in the price until the point at which sellers decide they would rather not sell the product at the low price. Overall the curve continues to shift until the quantity supplied equals demands. This process is preferred and generally is successful for most commodities because the sellers have the ability to store commodities for future use. Also it should be understood the general assumption is at the price of $0 the demand is infinite. References McConnell, Campbell R., Brue, Stanley, L., Sean M. Flynn. (2009). Economics: Principles, problems, and policies. 18th edition. McGraw-Hill Company.