Understanding market equilibrium is important for predicting how prices change in a market.

Market equilibrium happens when the amount people want to buy equals the amount that is available to sell. This balance tells us the market price and how much is sold.

Key Ideas:

1. Equilibrium Price: This is the price where the demand meets the supply. For example, if coffee costs £3, and at this price, people want to buy 100 cups, and there are 100 cups available, we have reached equilibrium.

2. Changes in Demand or Supply: Sometimes, outside factors can change demand (like a new trend for oat milk) or supply (like bad weather hurting coffee bean crops). Here’s how that works:

   • Increase in Demand: If more people want coffee because they hear it has health benefits, the demand curve moves to the right. This can raise the new equilibrium price above £3.
   • Decrease in Supply: If workers at a coffee farm go on strike, the supply curve moves to the left, which can also lead to a higher equilibrium price.

3. Watching for Price Changes: By looking at these changes, we can guess how prices will react. If demand keeps going up and supply doesn’t match it, prices are likely to go up too. This shows there is an imbalance in the market.

To sum it up, understanding market equilibrium helps us see how different market factors affect prices over time.