Understanding Equilibrium Price

Equilibrium price is really important for keeping the market balanced. It's the level where the amount of goods supplied matches the amount people want to buy. When this happens, the market works well, and things stay steady.

1. Supply and Demand Relationship:

• When the price is higher than the equilibrium price, there’s too much product available. For example, if a product costs $20, but the equilibrium price is$15, sellers might make 100 units, but people only want 75. This creates an extra 25 units that no one is buying.

• On the other hand, if the price is lower than the equilibrium price, there aren’t enough products. If a product is priced at $10 while the equilibrium is$15, more people want to buy it than what is available. This can lead to long lines as everyone tries to grab the limited items.

2. Price Adjustments:

• The market works like a seesaw; it tries to find balance. If there is too much of a product (surplus), sellers will likely lower their prices to sell more. But if there isn’t enough of a product (shortage), prices usually go up until everything is sold out.

3. Market Stability:

• Keeping the equilibrium price is important because big changes can lead to problems for the economy, which affects businesses and shoppers alike. Studies show that when markets stay at equilibrium, customer happiness goes up by about 15% because products are available at fair prices.

In short, the equilibrium price helps make sure resources are used wisely. This boosts confidence for both sellers and buyers in the market.