Market equilibrium Essay Example | Topics and Well Written Essays - 500 words

Market equilibrium - Essay Example Hence, price and quantity supplied are positively related (McConell, Brue, & Flynn, 2009). Economic equilibrium would be achieved when demand and supply of a commodity in discussion meets. This point will be called the optimum level of functioning point in an economy, as every stakeholder is able to achieve their objective of buying and selling. Equilibrium price is where quantity demanded and supplied meets. This is the price and buyers and producers buy and sell exactly the same amount of good (Sloman 1999). At any point below or above the equilibrium, it will either create excess demand in case of low price, or excess supply in case of higher price. The gap in supply and demand will exist in the short term. However, sellers and buyers would adjust their sell and purchase habit and equilibrium would eventually be achieved. Consider the example of an automobile industry, where demand and supply figures are shown in the table below. Price/ car(in thousands) Market Demand(in thousands ) Market Supply(in thousands) $5 700 400 $10 500 500 $15 350 600 If the price initially started at $5/car, demand would exceed supply by 300 units. At this point, suppliers would not be willing to offer more cars which will result in consumers being unable to obtain all they wanted and would thus be willing to pay a higher for it.