Market Equilibrium

Equilibrium:

• The supplier will always want the maximum price possible to sell the product while the consumer will always want the product at the cheapest price. So how is the price of a product decided?
• The equilibrium price is the price at which the quantity demanded by consumers equals the quantity supplied by producers.
• The equilibrium quantity is the quantity of goods that are bought and sold at the equilibrium price.

Graphical Representation of Equilibrium:

• The point where the demand curve and the supply curve intersect is called the market equilibrium.
• At this point, there is neither a surplus (excess supply) nor a shortage (excess demand) in the market.

📊 Example: 

The market-demand and supply equation for a product are:

Qd = 30 – 2P
Qs = 20 + 3P

Here Q for quantity; P for price.
What is the equilibrium demand?

To find the equilibrium, set quantity demanded (Qd) equal to quantity supplied (Qs):

Qd= Qs​

Substitute the given equations:

30 − 2P = 20 + 3P

Solve for P:

30 − 20 = 3P + 2P ⇒ 10 = 5P ⇒ P=2

Now plug P = 2 into either equation to find the equilibrium quantity:

Using the demand equation:

Qd = 30 − 2(2) = 30 − 4 = 26

Using the supply equation:

Qs = 20 + 3(2) = 20 + 6 = 26

So, the equilibrium demand (and supply) is 26 units.