Supply and Demand, Market Equilibrium and Price

Supply and Demand, Market Equilibrium and Price Elasticity

There are a number of factors that can affect the levels of supply and demand, which are closely related. Price is one of the main things that affects supply. If the price of something is higher, there will be less of a supply as it will cost more to obtain it. There will also eventually be less of a demand for the product, as people who are purchasing the item will be less willing to buy it if the cost is high. Although there may be other factors that affect supply and demand, price is one of the most apparent. It is price that affects supply and demand most of all.

Market price is the price that is set when supply and demand interact. Market equilibrium, which is also known as equilibrium price, is the price that is the result of the quantity of a product needed by the consumer and the quantity that businesses are willing to supply other businesses of that particular product or service. When these two prices are the same, it is said that the economy has reached market equilibrium.

When supply and demand are the same, it is said that the supply and demand has reached an equilibrium point. When this equilibrium point has been reached, there is a state of balance between supply and demand. As long as there is no shift in supply or demand, there will be no change in the market price of a particular good or service. Changes in condition will shift the curves of supply and demand, which will cause changes in market equilibrium price as well as quantity.

The necessity of a particular good and the availability of substitutes for that good can directly impact price elasticity, which is the way in which the price of something responds to other variables. The more price elasticity a product has, the more responsive prospective buyers are bound to be to changes in price.

When something has high price elasticity, the price of it will go up and buyers will purchase less of it. When the price goes down, buyers will buy more. When an item has very little low price elasticity, the opposite occurs. Low price elasticity implies that price changes have little to no influence on the overall demand of something.

It is also important to consider that changes in the price of substitute goods can affect price elasticity as well. When the change occurs the demand of the original item will be affected as well. If the price of a substitute goes up, the price of the original item will go up, as well. The increase in price of a substitute will increase the quantity that is demanded of the original good. A decrease in the cost of a substitute will cause a decrease in the quantity of the original good.

There are four different market systems to consider. Monopolies, oligopolies are the most common type of market system. Markets differ in that there are different numbers of firms in a particular market. This affects how easy it is for firms to enter and exit the market as well as the ability of other firms in the market to distinguish themselves from the rest. No matter what market system you are dealing with, the role of the economist is the same. Economists study the economy.