Answer to Question #252377 in Macroeconomics for Muskan

Question

Define the equilibrium of a market. Describe the market forces that move a market towards its equilibrium.

Answer 1

Equilibrium is the state in which market supply and demand are balanced, resulting in steady prices. In general, an oversupply of goods or services drives prices to fall, resulting in increased demand, whereas a shortage or undersupply causes prices to rise, resulting in lower demand. Supply and demand balance each other out, resulting in a condition of equilibrium.

The market equilibrium is determined by the intersection of the supply and demand curves. The quantity required equals the quantity provided at the equilibrium price. Because the price on the vertical axis and quantity on the horizontal axis of demand and supply curve graphs are the same, the demand and supply curves for a particular commodity or service might show on the same graph. Demand and supply work together to determine the price and amount of goods bought and sold in a market.

When there is a shortage, consumers who are dissatisfied with not being able to purchase the products or services they desire will seek to bid prices higher, bringing the market closer to equilibrium. If there is a surplus, suppliers are dissatisfied with their inability to sell the number of goods or services they desire, and they will cut prices to entice customers to buy more goods and services.