Market Equilibrium/Govt. Intervention
Economics essay:
Examine the concept of market equilibrium and discuss the reasons for and methods of government intervention in markets
Market equilibrium is a situation in which the supply of an item is exactly equal to the demand of that item, there is no surplus nor shortage. Under the circumstances of market equilibrium, prices tend to remain stable. Producers and consumers react differently to changes in price, higher prices are prone to reduce demand, while supply will increase, and when prices fall there tends to be a higher demand, and a reduced supply. In other terms, an increase in price means a drop in demand and a rise in supply, and vice versa.
Equilibrium
Equilibrium
As shown in figure 1, there is a point in which supply and demand intersect each other, this is where the quantity of demand equals the quantity supplied, this is the ideal price that retailers and producers should set their prices, it is known as the point of equilibrium, labelled in the diagram.
Theoretically, the market will reach the equilibrium point without intervention. When consumers want more of a product, the producers, driven by the incentive of a profit, will aim to meet the expectations of the consumer’s demand, this is called an excess in demand. Also, when consumers buy less of a product, producers will supply fewer units called an excess in supply. This principle is known as the price mechanism.
However, the price mechanism is not always successful in determining the right price for a good or service. When the price mechanism fails to achieve the desired outcome, it is called market failure, examples where this is likely to occur is in inelastic goods such as electricity and water, no matter how much firms are willing to charge for these utilities, consumers will always need to pay for it because they are necessities in life. In order
Examine the concept of market equilibrium and discuss the reasons for and methods of government intervention in markets
Market equilibrium is a situation in which the supply of an item is exactly equal to the demand of that item, there is no surplus nor shortage. Under the circumstances of market equilibrium, prices tend to remain stable. Producers and consumers react differently to changes in price, higher prices are prone to reduce demand, while supply will increase, and when prices fall there tends to be a higher demand, and a reduced supply. In other terms, an increase in price means a drop in demand and a rise in supply, and vice versa.
Equilibrium
Equilibrium
As shown in figure 1, there is a point in which supply and demand intersect each other, this is where the quantity of demand equals the quantity supplied, this is the ideal price that retailers and producers should set their prices, it is known as the point of equilibrium, labelled in the diagram.
Theoretically, the market will reach the equilibrium point without intervention. When consumers want more of a product, the producers, driven by the incentive of a profit, will aim to meet the expectations of the consumer’s demand, this is called an excess in demand. Also, when consumers buy less of a product, producers will supply fewer units called an excess in supply. This principle is known as the price mechanism.
However, the price mechanism is not always successful in determining the right price for a good or service. When the price mechanism fails to achieve the desired outcome, it is called market failure, examples where this is likely to occur is in inelastic goods such as electricity and water, no matter how much firms are willing to charge for these utilities, consumers will always need to pay for it because they are necessities in life. In order