What is Market Equilibrium?
This concept is built on the base laid down in Chapter 2 and 4 where we learnt the customer and enterprise traits when they are buyers or price takers. In Chapter 2, we had learnt that an individual’s demand curve for a good tells us what amount a customer is willing to purchase at different cost prices when he takes cost price as provided.
The market demand curve, in turn, teaches us how much of the good all the customers have taken together are willing to buy at different cost prices when everyone takes price as given. In the Chapter 4, we had learnt that an individual enterprise’s supply curve tells us the amount of the good that a profit-maximising enterprise would wish to sell at different cost prices when it takes cost price as given and the market supply curve tells us how much of the good all the enterprises have taken together would wish to supply at different cost prices when each enterprise takes cost price as given. In this chapter, we combine both customers’ and enterprises’ traits to study market equilibrium through demand-supply analysis and decide at what cost price equilibrium will be obtained. We also examine the effects of demand and supply shifts on equilibrium. At the end of the chapter, we can look at some of the applications of demand-supply analysis.
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Important topics on Market Equilibrium: