The equilibrium price

The essence of equilibrium in the market is that in this condition, this market can be considered balanced, that is, neither buyers nor sellers have for their part a desire to break the existing equilibrium. The equilibrium price is the point at which the interests of the parties coincide. In other words, equilibrium is a situation where, at a specific price, demand is equal to supply.

Undoubtedly, economic quantities that affect the value of certain goods, in the course of economic activity, are continuously changing. For this reason, the equilibrium price in dynamics can occur only in rare cases and is reached only for a short period of time. The reasons for such changes may be income change, the introduction of new technologies, changes in tastes, fashion, growth or lower prices for various factors of production. If these values begin to change, the supply and demand curves shift to the left or to the right, respectively, the market equilibrium and the equilibrium price change.

Functions of the equilibrium price

· Information.

· Distributive.

· Balancing.

· Stimulating.

· Normalizing.

Stability of equilibrium

The market, taken out of balance, may later return to this state or not return. Here we are faced with the problem of stability or stability of equilibrium.

Stability of equilibrium is the ability of the market to return to a state of equilibrium again under the influence of only internal factors. In the event that equilibrium in the market is stable, then additional regulation is not mandatory, that is, the market is able to independently maintain a balance. And in the event that this market does not have the property of stability, then its regulation becomes necessary.

The main means of government impact on the market are: subsidies, taxes, fixed prices or fixed production volumes of goods. The most mild and appropriate way to regulate a market mechanism is taxation. Taxes do not change the conditions of the course of market processes, they do not interfere with the freedom of actions of market participants.

Deviations from the equilibrium price

There is either an exact equilibrium price or a deviation from the equilibrium state. Market equilibrium exists when there is already no opportunity to change the number of goods sold or the market price.

The market price is set automatically on the market. This process was called A. Smith's mechanism of the "invisible hand." An increase in the price of demand in comparison with the price of supply will help to redistribute certain resources in favor of markets with more solvent demand.

Overpriced can be evidence of the relative scarcity of benefits, which encourages producers to expand production and meet the needs of customers. Since the equilibrium price can significantly exceed the costs of producers, whose costs are below the average for the market, this condition will help to redistribute resources to the best producers, which will improve the economy as a whole.

However, consumers do not always remain satisfied with steady equilibrium prices. Public discontent paves the way for active state intervention in pricing processes.

In practice, government intervention, as already noted, can result in the establishment of minimum or maximum prices. If the minimum price that was set by the state is below equilibrium, there is a deficit, and if the minimum is higher than the equilibrium price, an excess of the product is formed.