Glamor Economics

Chapter 25

Chapter 4 Section 6 The Outcome of a Compromise Between Supply and Demand—Equilibrium Price

Demand and supply are like two hands that control market prices.Their constant movement leads to constant changes in prices.When demand increases, the price of a good rises; when supply increases, the price of a good falls.The market price fluctuates continuously in the change of supply and demand, tends to balance, that is, reaches the equilibrium price.

The founder of general equilibrium theory is the French economist Walras.In Walrasian equilibrium theory, there is an auction bidder (also known as a Walrasian auctioneer) who obtains the equilibrium price of the commodity through bidding on the commodity.At this point, the quantity supplied is exactly equal to the quantity demanded.There is neither a shortage nor an oversupply, so there is no pressure for further price changes.In this sense, the price of a certain commodity in the market is determined by the demand and supply of the commodity. The state in which the supply equals the demand and the price does not change is the equilibrium state of the market.

The equilibrium price refers to the price when the market demand and market supply of the commodity are equal, and the equal supply and demand quantity at the equilibrium price level is called the equilibrium quantity.For example, in the figure below is E.The equilibrium price and equilibrium quantity at the point where the quantity supplied is equal to the quantity demanded.

In the above figure, we use OP to represent the price of a certain product, OQ to represent the quantity of this product, S line is the supply curve of this product, D line is the demand curve of this product, and the price at the intersection point EO is the equilibrium price. That is, at any price above EO, the supply will exceed the demand, and the market will deviate from the equilibrium. At this time, there will be excess supply, that is, supply exceeds demand; at any price below EO, the demand will exceed the supply, and the market will deviate from In equilibrium, there will be excess demand at this time, that is, supply is less than demand.

The equilibrium price is formed spontaneously in the process of competition between supply and demand sides in the market, and the formation of equilibrium price is the process of price determination.It should be emphasized that the price with external intervention is not the equilibrium price.

From the perspective of supply and demand, the equilibrium price is the price that consumers are willing to pay to purchase a certain quantity of goods, which is consistent with the supply price that producers are willing to accept to provide a certain quantity of goods.The equilibrium price is the price at which the quantity supplied and the quantity demanded are equal, and the supply price of the commodity is equal to the demand price.In a market, due to the interaction of supply and demand forces, the market price tends towards the equilibrium price.

According to Friedman, "A state of equilibrium is a state which, once established, will be maintained."

Market equilibrium is divided into partial equilibrium and general equilibrium.If only one or several commodities in the market reach the balance of supply and demand, it is a partial equilibrium.If supply and demand for all goods reach equilibrium, this is general equilibrium.The general equilibrium is the real equilibrium, and the partial equilibrium is only a temporary equilibrium.

Once the market reaches an equilibrium price, all buyers and sellers are satisfied, and there is no upward or downward pressure on prices.The speed at which equilibrium is reached varies in different markets, depending on how quickly prices adjust.In most free markets, surpluses and shortages are only temporary as prices eventually move to their equilibrium levels.

[links to related words]

The law of supply and demand The behavior of buyers and sellers naturally brings the market towards equilibrium.When the market price is higher than the equilibrium price, there is excess supply, which causes the market price to fall; when the market price is lower than the equilibrium price, there is excess demand, which causes the market price to rise.

The firm's equilibrium refers to the level or state of output when a firm maximizes profits under various constraints.At this point the firm has no incentive to change its output or price level.In the canonical theory of the firm, this means that the firm chooses a level of output at which marginal revenue exactly equals marginal cost.

The state in which the equilibrium consumer utility of a single consumer is maximized.Under a given income and price level, consumers choose the combination of goods that can satisfy their needs to the greatest extent.

Macroeconomic equilibrium means that all actors in the economy have maximized their interests through the market, and no one can gain more benefits from this state change. At this time, all subjects have no motivation to change behavior. to achieve a stable, balanced state.

(End of this chapter)