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

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

Expert Solution

Market Equilibrium : Equilibrium means balance or equal. That is, there is no tendency to move in either direction. Equilibrium is defined as a situation in which the objectives of all firms ( profit ) and consumers ( prefernces ) are satisfied and the market is cleared. At equilibrium point, the quantity of good sold by all the firms and the quantity of goods bought by all the consumers are equal, ie; market demand will be equal to market supply at equilibrium. The price at which demand and supply are equal is known as equilibrium price. The quantity demanded and supplied will be equal at the equilibrium price. When the price is very high the buyers are not willing to buy. When the price is low producers are not willing to willing to sell. The quantity of goods sold and bought at equilibrium price is known as equilibrium quantity. The situation in which market demand is higher than the market supply is known at a given price is known as Excess Demand. The situation in which supply is higher than market demand at a given price is called Excess Supply.

Forces that move a market towards the equilibrium

Equilibrium price is one at which the quantity supplied and demanded are equal. So, when there is shift in supply or shift in demand new equilibrium emerges in price and quantity.

Shift in demand : Demand curve shift due to changes in non-price factors like consumers income, prices of other commodities and taste and preferences of the consumers. When the market demand curve shifts righwards and supply remains same, equilibrium price and equilibrium quanity increases. When demand curve shifts leftward and supply remains the same, the equilibrium price and quantity decreases.

Shift in supply : Market supply curve shifts due to the changes in non price factors like price of inputs, technology, unit tax etc. When market supply shifts rightwards and demand remains the same, equilibrium price decreases and equilibrium quantity increases. When market supply shifts leftward and the demand remains the same equilibrium price increases and equilibrium quantity decreases.

Rahul Sunny answered 2 years ago

Question 174 pts An efficient way to move toward the Nash equilibrium is called: an agreement....

Question 174 pts An efficient way to move toward the Nash equilibrium is called: an agreement. a principle. a convergence. a resolution. a convention. Flag this Question Question 184 pts In long-run equilibrium, the monopolistically competitive firm: will earn a positive economic profit. will cease to advertise. will no longer need to engage in non-price competition. will face a perfectly elastic demand curve. will break even. Flag this Question Question 194 pts Celebrity endorsements are often used by monopolistically competitive...

A competitive market equilibrium is a stable equilibrium. What does that mean and what forces create...

A competitive market equilibrium is a stable equilibrium. What does that mean and what forces create this stability?

1. If a price is above the equilibrium price, explain the forces that bring the market...

1. If a price is above the equilibrium price, explain the forces that bring the market back to the equilibrium price and quantity. If a price is below the equilibrium price, explain the forces that bring the market back to the equilibrium price and quantity.

Define perfect competition market and briefly describe its main conditions

Explain the concept of equilibrium as it pertains to Demand and Supply; identify what market forces...

Explain the concept of equilibrium as it pertains to Demand and Supply; identify what market forces keep a market from reaching equilibrium, and why the natural tendency is to move toward equilibrium. In your answer be sure to also explain what causes shifts vs. movement in both Demand and Supply.

Define and describe a LABOR MARKET

Define the forces driving change in the direct selling market, such as Amway, and the impact...

Define the forces driving change in the direct selling market, such as Amway, and the impact each is likely to have.

Market forces usually put pressure on prices to adjust to equilibrium; surpluses and shortages are generally...

Market forces usually put pressure on prices to adjust to equilibrium; surpluses and shortages are generally undesirable by both buyers and sellers. But occasionally, you can observe firms knowingly setting prices above or below the equilibrium price. One example is the market for sneakers, where “a sneaker might cost $200 at retail and might sell for $1000 on the secondary market, just because of that difference between supply and demand.” Why do you think a company like Nike would find...

Define the forces driving change in the household and personal products market and the impact each...

Define the forces driving change in the household and personal products market and the impact each is likely to have

Two forces are applied to a car in an effort to move it, as shown in...

Two forces are applied to a car in an effort to move it, as shown in the figure below. (Let F1 = 445 N and F2 = 353 N. Assume up and to the right are in the positive directions.) An illustration shows an overhead view of a car as it approaches a fork in the road. The car is oriented such that it is directed toward the top of the illustration. A force F1 extends from the nose of...

Question