equilibrium price

(noun)

The price of a commodity at which the quantity that buyers wish to buy equals the quantity that sellers wish to sell.

Examples of equilibrium price in the following topics:

  • The Demand Curve in Perfect Competition

    • A perfectly competitive firm faces a demand curve is a horizontal line equal to the equilibrium price of the entire market.
    • Individual firms are forced to charge the equilibrium price of the market or consumers will purchase the product from the numerous other firms in the market charging a lower price (keep in mind the key conditions of perfect competition).
    • The demand curve for an individual firm is thus equal to the equilibrium price of the market .
    • The demand curve for a firm in a perfectly competitive market varies significantly from that of the entire market.The market demand curve slopes downward, while the perfectly competitive firm's demand curve is a horizontal line equal to the equilibrium price of the entire market.
    • The demand curve for an individual firm is equal to the equilibrium price of the market.
  • Market Adjustment to Change

    • A decrease in demand will cause both the equilibrium price and quantity to fall.
    • If the supply shifts and demand remains constant, the equilibrium price and quantity will be altered.
    • An increase in supply (while demand is constant) will cause the equilibrium price to decrease and the equilibrium quantity to increase.
    • A decrease in supply will result in an increase is the equilibrium price and a decrease in equilibrium quantity.
    • Should demand decrease and supply increase, both push the equilibrium price down.
  • Impacts of Price Changes on Consumer Surplus

    • Consumer surplus decreases when price is set above the equilibrium price, but increases to a certain point when price is below the equilibrium price.
    • A binding price ceiling is one that is lower than the pareto efficient market price.
    • If a good's price drops below the market equilibrium for whatever reason, manufacturing the product will be less profitable for the producers.
    • When a price floor is set above the equilibrium price, consumers will have to purchase the product at a higher price.
    • An increase in the price will reduce consumer surplus, while a decrease in the price will increase consumer surplus.
  • Impacts of Supply and Demand on Businesses

    • The point at which the two curves intersect is the equilibrium price.
    • If, on the other hand, a farmer tries to charge less than the equilibrium price of $0.60 a pound, he will sell more apples but his profit per pound will be less than at the equilibrium price.
    • The demand curve would change, resulting in an increase in equilibrium price.
    • If so, the supply curve would shift, resulting in another change in equilibrium price: The increase in supply would bring down prices.
    • The equilibrium price for a certain type of labor is the wage rate.
  • Clearing the Market at Equilibrium Price and Quantity

    • Through effectively controlling the diamond market supply (via owning the mines), and warehousing the diamonds in a way to substantially alter the available supply, it became reasonably easy for Da Beers to charge prices in excess of what a reasonable equilibrium would be.
    • This equilibrium point is represented by the intersection of a downward sloping demand line and an upward sloping supply line, with price as the y-axis and quantity as the x-axis .
    • Combining these two assumptions, in a perfectly competitive market the amount of a product or service that is supplied at a given price will equate to the amount demanded, clearing the market of all goods/services at a given equilibrium point.
    • Even in static markets there is competitive consolidation that allows companies to charge differing price points than that of the equilibrium.
    • The equilibrium point is where market clearing will theoretically occur.
  • Price Ceilings

    • A price ceiling is a price control that limits how high a price can be charged for a good or service.
    • A price ceiling is a price control that limits the maximum price that can be charged for a product or service.
    • An example of a price ceiling is rent control.
    • By setting a maximum price, any market in which the equilibrium price is above the price ceiling is inefficient.
    • For a price ceiling to be effective, it must be less than the free-market equilibrium price.
  • Equilibrium

    • There is an equilibrium price that equates or balances the amount that agents want to buy with the amount that is produced and offered for sale (at that price).
    • There are no forces (from buyers or sellers) that will alter the equilibrium price or equilibrium quantity.
    • In Figure III.A.9, If the price were at $20. the price is "too high" and the market is not in equilibrium.
    • When the market price is below the equilibrium price the quantity demanded exceeds the quantity supplied.
    • At the price below equilibrium, buyers are willing and able to purchase an amount that is greater than the suppliers produce and offer for sale.
  • Impacts of Surpluses and Shortages on Market Equilibrium

    • In the analysis of market equilibrium, specifically for pricing and volume determinations, a thorough understanding of the supply and demand inputs is critical to economics.
    • Surpluses, or excess supply, indicate that the quantity of a good or service exceeds the demand for that particular good at the price in which the producers would wish to sell (equilibrium level).
    • Governmental intervention can often create surplus as well, particularly through the utilization of a price floor if it is set at a price above the market equilibrium .
    • This disparity implies that the current market equilibrium at a given price is unfit for the current supply and demand relationship, noting that the price is set too low.
    • A price floor ensures a minimum price is charged for a specific good, often higher than that what the previous market equilibrium determined.
  • Macroeconomic Equilibrium

    • Without any external influences, price and quantity will remain at the equilibrium value .
    • If quantity demand increases and supply remains unchanged, a shortage occurs, leading to a higher price until the quantity demanded is pushed back to equilibrium.
    • If quantity demand decreases and supply remains unchanged, a surplus occurs, leading to a lower price until the quantity demanded is pushed back to equilibrium.
    • If quantity demand remains unchanged and supply increases, a surplus occurs, leading to a lower price until the quantity supplied is pushed back to equilibrium.
    • Equilibrium is the price-quantity pair where the quantity demanded is equal to the quantity supplied.
  • Graphing Equilibrium

    • The AD-AS model is used to graph the aggregate expenditure and the point of equilibrium .
    • The AD-AS model is used to graph the aggregate expenditure at the point of equilibrium.
    • The AD-AS model includes price changes.
    • It is important to note that the economy does not stay in a state of equilibrium.
    • The aggregate expenditure and aggregate supply adjust each other towards equilibrium.
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