Introduction to Equilibrium

Seite 1

The Equilibrium Price is the price which ensures that exactly everything that is produced (supplied) is purchased (demanded)

The equilibrium price is arrived at by examining the interaction of the demand and supply curves - the point of intersection of the two curves is the equilibrium price and quantity

Arriving at the Equilibrium Price

Why is the Equilibrium Price/Quantity Important?

This is important for both consumers and suppliers

Suppliers want to sell everything that they produce, they do not want unsold stock and they also want to supply enough to meet customer demands

On the other hand, customers want goods, they don't want shortages.

For these reasons, finding the equilibrium price and quantity is important for both suppliers and consumers

For your own convenience, it is important to note at this early stage the equilibrium price and equilibrium quantity are abbreviated to P* and Q* in many economics textbooks and educational materials

Above is a graphical depiction of how the equilibrium price and quantity can be found

You simply need to compare demand and supply graphs, and where they meet, there you will find your equilibrium price and quantity.

If you remember our definition of equilibrium price (the price that ensures everything that is produced is sold) - the point at which demand intersects supply represents this price, as the point of intersection represents the price and quantity where demand equals supply

Introduction to Equilibrium