Market equilibrium is able to show interaction between the demand and supply. “Equilibrium” is Latin word, which means equal balance. It means there is no tendency to move.
Equilibrium of demand and supply:
Take here interaction between demand and supply. Demand and supply are always depended on price for commodities. Equilibrium price is the match of price of quantity demand and quantity supply. Equilibrium quantity is buying and selling products on equilibrium price. Here is a diagram to represent market equilibrium:
- Equilibrium of Demand and Supply
Equilibrium Price:
There is a graph to show equilibrium price of market. Here, supply is P2 S2. There is excess demand of S2 D2. Due to competition in buyers, the price increases and reaches OP.
- Equilibrium Price
Market equilibrium:
If there are no changes in demand or supply then equilibrium will go on so long. At first, we should take the change in the demand curve and assume that the supply curve remains shame. For example – if the shift in demand curve is due to change in income.
- Market Equilibrium (Shift in demand curve)
Let’s take a view of shift in the supply curve also and assume that the demand curve remains constant.
- Market Equilibrium (Shift in supply curve)
At last, in the market equilibrium, everyone who wants to sell, finds a buyer and everyone who wants to buy, gets a seller. This happen when, the market reaches equilibrium when the buyer finds a willing seller and seller finds a willing buyer. This tendency of market to reach equilibrium is not just theoretical, but we can see things happening in our day to day life.
