What is Market Equilibrium?

Themarket equilibrium, it is an almost perfect state in which a market the consumer You can buy what the companies in the industry offer, at the prices that they offer.

Any market has the mission of putting in contact the demanders and suppliers, regulating by means of the price, the adequate exchange of goods and services between them.

What is understood by market?

It is the place, without necessarily speaking of a physical space, where purchase-sale transactions are carried out. In other words, it is the medium in which goods and / or services produced in an economy are marketed.

A market it allows buyers (demand) and sellers (supply) to interact and agree to exchange a certain good or service at an explicit price.

That is, as soon as there is someone willing to buy a certain good, there is someone prepared to sell it, giving rise to what is known as a market.

Before going to balance conceptmarket and in order to be understood in the simplest way possible, two simple concepts of the two elements that interact in the market are presented.

- Demand

It is the amount of a certain product that the consumer is willing to buy.

- Offer

It is the quantity of a certain product that producers are willing to sell.

Role of supply and demand

It could be said that there is a basic principle on which the market economy is sustained, which is known as the law of supply. and demand, which also reflects the relationship between the quantity demanded and the quantity supplied of a given good or service.

This law explains the form of price alignment, depending on the quantities offered and the requests of the consumer, establishing a price at which both parties agree to carry out the exchange economic.

Law of supply

It is given by the existence of a direct relationship between the supply and the price of the good, and says:

• The higher the price, the higher the quantity supplied.
• The lower the price, the lower the quantity supplied.

Law of demand

It is given by the existence of an indirect relationship of demand with the price of the good, and says:

• The higher the price, the lower the quantity demanded.
• The lower the price, the higher the quantity demanded.

What is market equilibrium?

It has already been clear that a market is made up of:

• Plaintiffs with a desire to buy certain goods at the lowest price.
• Bidders with ambitions to sell certain goods at the highest price.

So it is necessary for both parties to enter into an agreement so that the exchange takes place properly.

The market equilibrium It is the situation in which the quantity demanded is equal to the quantity supplied.

In this sense, the point where the curves corresponding to demand and supply intersect is known as market breakeven point. In this case, the market price also coincides with said equilibrium point, this price that corresponds to the equilibrium point is called the equilibrium price.

We can consider the following situations in the market equilibrium:

• Everything produced is sold.
• Everything that is demanded is possible to acquire.
• The quantity produced and the price are determined by the supply and demand of the good or service.

Otherwise:

If the price is high.

• The offer will be above the demand is willing or can buy, therefore, by not selling certain quantities, producers must reduce their prices and in some cases the quantity produced.

If the price is too low.

• The demand will be higher than the quantity supplied, therefore there will be a shortage and some consumers may be willing to pay a higher price in order to obtain the product.

The equilibrium point is very difficult to maintain over time, it can be said that the equilibrium lasts very little, because there are factors such as, for example:

Fashion, economic crises, climatic catastrophes, competition, among others, that generate changes in the conditions of supply and demand.

Why is it important for a market to be in equilibrium?

A weighting that speaks of the dynamism of the market is more realistic, with the view that equilibrium does not exist.

• The problem exists is that there cannot be equilibrium within all markets, since the equilibrium tendency of a certain market, can generate imbalance in other markets, generating an unpredictable and chain effect of the productive and economic system.

However, after all the balance is important to show that the economic system incorporates an automatic regulation, with tendency to an optimal equilibrium, which through prices establishes correspondence and equality between the quantity demanded and the quantity offered.

• If this equilibrium is never reached, it is possible that there will be no benefits of the free market, implying that the market corresponds to another type in which the conditions, benefits and characteristics are established, but not in harmony.
• If there is no equilibrium, the prices and quantities demanded do not subjectively reflect the preferences of the Consumers, on the other hand, prices in the market system, will never reflect the efficient use of means.

Finally, it is important to note that what makes this balancing process extraordinary is the fact that it is not consciously planned or directed by anyone.

For Adam Smith “The invisible hand”. Market forces, the downward pressure experienced by prices in the face of excess supply or upward tension when there is excess demand.

In this way, consumers and producers, motivated by their own interests, make decisions aimed at restoring a market equilibrium favorable to them. interests, generating that the market trend is to go towards equilibrium, adequately readjusting and avoiding situations of surplus production or shortage.