Free «Effect of Price and Quantity on Equilibrium» Essay Sample

Carbaugh (2006) defines market equilibrium as, "the combination of price and quantity at which the plans of sellers and buyers synchronize" (Carbaugh, 2006, p. 42). He claims that after the attaining of the market equilibrium the state of equilibrium remains unchanged unless the demand or the supply is altered (Carbaugh, 2006, p. 42). Demand and supply are mainly the two factors which can cause change in the equilibrium status. It should be noted that at the equilibrium the buyers are willing to buy all the supply in the market at a given price which the sellers are equally comfortable supplying at (Tutor, n.

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d., par. 2).

Among the factors which can affect demand and supply is quantity and price. Making an assumption that all the other factors are constant a change in quantity will affect the equilibrium in the following ways:

An increase in the quantity supplied to the market will lead excess of what is being demanded by the customers.

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This surplus situation leads the supplies to reduce the price of their commodities. Thus the quantity increase would have caused surplus in the market which leads to decreasing the equilibrium price. The excess supplied to the market is the difference between the quantity supplied and that demanded. A decrease in the quantity supplied to the market from the normal equilibrium quantity will lead to market shortage. This will raise the demand prompting the suppliers to raise the prices of the commodity supplied (Carbaugh, 2006, p. 42).

On the other hand a change in the price assuming all the other factors are constant can lead to the same changes as above. If for instance the supplies decide to increase the price of their commodities the customers are likely to demand less thus there will be a surplus in the market because the net demand would have reduced. On the other hand if the supplies reduce their prices then the customers will be tempted to buy more leading to a shortage in the market (Carbaugh, 2006, p.



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