Market Equilibrium¶

Market situation when price has reached the level where quantity supplied = quantity demand

no tendency for change in price/decisions, as both producers and consumers are satisfied

Auctions take place until equilibrium is reached

IDK¶

Short-Run¶

Long-Run¶

• Excess demand and supply tends to 0
• Total market profit = 0
  • Equilibrium forces an optimal no of parties
  • If there was any possible profit, more parties will join

Obtaining Equilibrium¶

1. Get \(P\) by equating market demand and market supply functions and solving them
2. Get \(Q\) by substituting \(P\) in either function (both gives the same answer)

we can also draw a graph and obtain the point of interception of the supply and demand curves

Dis-equilibrium¶

Whenever there is a disequilibrium, the market automatically adjusts the price

Automatic market correction mechanism always occurs, given that

1. Prices are flexible
2. Market free from government intervention
3. Both buyers and sellers are equally-informed about the market (internet has helped with making information symmetric); otherwise there will be one or more of the following
4. sellers will manipulate buyers
5. all the sellers will be selling bad products, as it more profitable to do so
6. company recruiters will only get bad candidates as the salary they provide will be amazing for bad candidates, but too low for good candidates so only the bad candidates will end up accepting the job
7. buyers will be hesitant to pay higher price, even when the seller is justified to ask that much

Government¶

Whenever there is govt intervention in market dis-equilibrium, there will be always be a tendency for the existence of a parallel black market. Black market (not the illegal market one) is a market that sells commodity at price cheaper than govt-issued price.

Change in Equilibrium¶

Equilibrium Geogebra

Imagine an auction

Ambiguous –> it depends on the relative change b/w the supply and demand

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