Market equilibrium: definition of the concept, conditions of occurrence. Market equilibrium and its characteristics

The market is a mechanism for the interaction of buyers and sellers, which, ultimately, involves a certain ratio of supply and demand. If the interests of producers and consumers coincide, then market equilibrium- a situation in the market when the supply and demand are the same or equivalent at an acceptable price for the consumer and the producer. The economic meaning of this equilibrium lies in the fact that it reflects the unity of sellers and buyers, the equality of their capabilities and desires. Equilibrium is the law for every competitive market. Thanks to the equilibrium in each commodity market, the equilibrium of the economic system as a whole is maintained.

Due to the increase or decrease in demand and / or supply, changes occur in the equilibrium quantities of goods and equilibrium prices. As a result of the interaction of supply and demand or the interaction of the demand price and the offer price, a market price is established (Fig. 2.5).

Rice. 2.5. The equilibrium price and quantity of a product are determined

market demand and supply

It is fixed at the point where the supply and demand curves intersect (point E). This point is called balance point, and the price is equilibrium. Only at the equilibrium point, the price suits both the buyer and the seller at the same time. Indeed, it is unprofitable for producers to further increase prices and increase supply volumes, since then the product will not find demand. The consumer should not count on price cuts either, as this is contrary to the interests of producers.

If the market price is below the equilibrium price, then deficit, where demand exceeds supply. When the market price is above the equilibrium price, then an excess of goods where supply exceeds demand. In other words, when the market price is above the equilibrium price, this leads to surpluses and dissatisfied sellers. Underpricing, on the contrary, leads to the formation of a shortage and dissatisfaction of buyers. Inventory increases, overstocking puts downward pressure on prices. This is the result of sellers having difficulty selling products, which leads to a reduction in the supply and causes the seller to competitively lower the price to the equilibrium price.

In this way, equilibrium price is the price at which the quantity of a good offered on the market is equal to the quantity of a good demanded.

If the price rises above the equilibrium point, it will stimulate an increase in production. Between the producers of this type of product, competition will begin, as a result of which an excess of goods is formed and the price for it will begin to decline, approaching the equilibrium point. Conversely, if the price falls below the equilibrium point, it will intensify competition among buyers. This will lead to an increase in prices, expansion of production and a return of prices to the equilibrium price.

Demand may change due to fluctuations in consumer tastes or incomes, changes in consumer expectations, or fluctuations in the prices of related products. And supply can change under the influence of changes in resource prices, technology, or taxes (Figure 2.6).

Rice. 2.6. Changes in supply and demand and their impact on the price and quantity of a product:
a - increase in demand; b - decrease in demand; c - increase in supply;
d - decrease in supply

Our analysis would be incomplete if we did not consider the effect of changes in supply and demand on the equilibrium price.

Change in demand . Let us first analyze the effects of changes in demand, assuming that supply remains constant. Suppose that demand increases as shown in Figure 2.6, a. An increase in demand, ceteris paribus (supply), generates the effect of increasing the price and the effect of increasing the quantity of the product. As shown in Figure 2.6b, a decrease in demand exhibits both a price reduction effect and a product reduction effect. So, there is a direct connection between the change in demand and the resulting changes in both the equilibrium price and the quantity of the product.

Change of offer . Now consider the effect of a change in supply on price, assuming that demand is constant. When supply increases, as shown in Figure 2.6c, the new supply-demand intersection is below the equilibrium price. However, the equilibrium amount of the product increases. When the supply decreases, this leads to an increase in the price of the product. Figure 2.6, d illustrates a similar situation. In this case, the price rises and the quantity of the product decreases. An increase in supply generates the effect of lowering the price and the effect of increasing the quantity of the product. Thus, there is an inverse relationship between the change in supply and the resulting change in the equilibrium price, but the relationship between the change in supply and the resulting change in the quantity of product remains direct.

It is clear that many more complicated cases can arise when both supply and demand change. There are two cases where supply and demand are assumed to move in opposite directions. First case. Suppose supply increases and demand decreases. An increase in supply leads to an increase in the equilibrium quantity of a product, while a decrease in demand leads to a decrease in the equilibrium quantity of a product. The direction of change in the quantity of a product depends on the relative parameters of changes in supply and demand.

The second possible case is when supply decreases and demand increases. There are two effects of the price increase here. The impact on the equilibrium quantity of the product in this case is equidirectional and depends on the relative parameters of changes in supply and demand. If the decrease in supply is relatively greater than the increase in demand, the equilibrium quantity of the product will be less than it was originally. However, if the reduction in supply is relatively smaller than the increase in demand, the equilibrium quantity of the product will increase as a result of these changes.

What happens when supply and demand move in the same direction? Here we should compare two opposing influences on price - the effect of lowering the price as a result of an increase in supply and the effect of raising the price as a result of an increase in demand. If the scale of the increase in supply is greater than the scale of the increase in demand, then eventually the equilibrium price will fall. If the opposite happens, the equilibrium price will rise. The effect on the equilibrium quantity of a product is unequivocal: an increase in both supply and demand leads to an increase in the quantity of product.

There may be special cases where a decrease in demand and a decrease in supply, on the one hand, and an increase in demand and an increase in supply, on the other, completely neutralize each other. In both these cases, the final impact on the equilibrium price is zero, the price does not change.

Market equilibrium is such a relationship between supply and demand, in which the quantity of goods that buyers want to purchase corresponds to the quantity that producers are willing to offer at a given price and at a given time.

On the graph, market equilibrium is illustrated by the intersection of supply and demand curves. The curves can only intersect at one point - the point of market equilibrium. This point corresponds to the equilibrium price and equilibrium output.

The equilibrium price (P e) is the price at which there is neither an excess nor a shortage of goods on the market.

Equilibrium volume (Q e) - this is the amount of goods that is sold at the equilibrium price.

If the market is in equilibrium, then both sellers and buyers of products receive some benefit from the exchange.

Rice. five. consumer's surplus and seller's surplus

The surplus of buyers arises from the fact that they pay for all units of the equilibrium volume Qe at a single market equilibrium price Pe, and not at demand prices. Some buyers, having large incomes, would agree to buy at prices higher than the equilibrium. They would save some of their income by buying the good at the equilibrium price.

0AEQ e - the amount that consumers are willing to pay for the equilibrium quantity of goods (the sum of demand prices).

0P e EQ e - actual expenses of consumers.

Surplus of buyers = 0AEQ e - 0P e EQ e, that is, P e AE - the amount that buyers win.

Seller's surplus is obtained when all units of the equilibrium quantity Q e are sold at the same equilibrium market price, but not at the bid prices.

0BEQ e - the amount for which manufacturers are willing to offer goods (the sum of offer prices).

0P e EQ e - the actual revenue of sellers.

Surplus of sellers = 0BEQ e - 0P e EQ e, that is, P e BE - the amount that sellers win.

The total surplus of the buyer and seller P e AE + P e BE is their total gain from the exchange.

If the market price is higher than the equilibrium price (P 1), then there will be a commodity surplus. To realize this surplus, sellers will begin to reduce the price. As a result, the volume of demand will increase, and the volume of supply will decrease until they become equal.

If the market price is below the equilibrium price (P 2), there will be a shortage of goods. In this case, buyers are ready to overpay for the necessary goods, i.e., the price begins to rise, and the situation on the market again returns to the equilibrium point.

R

Surplus S

D deficiency

Rice. 6. Market equilibrium of supply and demand prices

This is how the mechanism of self-regulation of the market works, which, through the reaction of prices to the emerging excess or shortage of goods, changes the market behavior of buyers and sellers.

A change in demand or supply under the influence of non-price factors is accompanied by shifts in the curves. As a result, equilibrium will be reached at the new points of their intersection.

At the same time, a situation of fixed disequilibrium may develop in the market under the influence of so-called non-market factors (the state, monopolies or trade unions).

The state can fix the price of some goods below the equilibrium price, thereby setting its upper limit. You can't sell goods for more.

The price "ceiling" is introduced to support the low-income segments of the population or to fight inflation, but at the same time a steady shortage of goods is established. In this case, the state must either limit demand (for example, introduce a system for distributing goods through coupons, cards), or stimulate supply (for example, compensate manufacturers for part of the costs of producing goods).

The state can also fix the price of some goods above the equilibrium price, thereby setting its lower limit. Price floors are usually set to achieve an acceptable level of income for some suppliers (for example, to ensure a minimum wage or the profitability of agricultural production). But this measure leads to the emergence of a stable surplus of products, so the state is obliged either to purchase these surpluses, or to reduce the supply of goods, or to increase the demand of buyers through a system of subsidies and subsidies.

Since the supply of goods is usually elastic only with time, the formation of market equilibrium also depends on the time factor.

Depending on the time, there are:

Instant balance. In a very short period of time, the supply of goods cannot be increased, so the equilibrium depends only on demand.

short term balance. The enterprise can increase the volume of supply by using internal capacities.

Long term balance. Over time, other businesses may join the production of this product, or new technologies are introduced, which leads to a shift in the supply curve.

Market equilibrium- such a state of the economy when the quantity of goods for which there is a steady demand at a certain price is equal to the quantity of goods offered for sale at the demanded price.

The part of the economic space in which the interests of sellers and buyers are located is called the economic area. In everyday life, the sale and purchase of goods can take place at completely different prices, limited by the upper limit of the demand price and the lower limit of the supply price. The price of such a real deal is determined by a number of factors: the balance of power (monopoly or monopsony); irrationality of behavior due to lack of experience or poor awareness of participants in transactions.

Market equilibrium is considered stable when a deviation from it entails a simultaneous return to the original state. Otherwise, the equilibrium is unstable.

Instantaneous equilibrium characterizes the situation when the supply in the market does not change.

The state of the market is directly affected by the tax policy pursued by the state. Effect of taxes on market equilibrium reduces to the following mechanism.

Taxes regulate the income of social strata of the population. Additional revenues affect sectors of the non-state economy. At the same time, it leads to a decrease in the income of enterprises and households and their opportunities for consumption and savings. Tax cuts have a positive effect on household and business income, which stimulates demand.

Taxes are costs that increase the price of goods and are passed on to producers and then to consumers.

It doesn't matter if the seller or the buyer pays the tax, in any case it affects the state of the curves. If the buyer pays, demand falls; if the seller - the offer is reduced.

Establishing an equilibrium price occurs in a competitive market under the influence of general trends and specific features of both supply and demand. On fig. 1 shows in the most general form the dynamic processes that occur in the sphere of movement of goods and prices.

Rice. one. Graph of the market balance of supply and demand

Equilibrium market priceis the price at which there is no surplus or shortage for any given commodity. It is established as a result of balancing supply and demand as the monetary equivalent of a strictly defined quantity of goods.

Supply and demand are balanced under the influence of the competitive market environment, as a result of which the price and the quantity of the commodity sold at that price are the result of the balance of supply and demand. Other things being equal, the price corresponds to the quantity that buyers want to buy and sellers are willing to sell.

Intersection pointE is the point of balance between supply and demand. As shown in the equilibrium graph, any surplus of a commodity brought to market "pushes" the price of the commodity down towards the equilibrium point. And vice versa, if there is a shortage on the market, a shortage of any goods, then an upward trend arises, which “presses” the price of the missing goods upwards, towards the same equilibrium point.

Ultimately, an equilibrium price P e will be established, at which Q e goods will be sold in this market at any given time. At each subsequent moment of time (during the day, week, month, year) the market equilibrium can be established as a certain new value of the equilibrium price and the number of sales of goods at this price.

However, equilibrium- this is a state of the market in which Q d = Q s . Any deviation from this state sets in motion forces that can return the market to a state of equilibrium: eliminate the shortage (Q d > Q) or excess goods on the market (Q s< Q d).

The balancing function is performed by the price, stimulating the growth of supply with a shortage and "unloading" the market from surpluses, holding back supply. If demand grows, a new, higher equilibrium price level and a new, larger supply of goods are established. Conversely, a decrease in demand leads to the establishment of a lower equilibrium price and a smaller supply volume (Fig. 2, a, b).

Rice. 2. (a) Equilibrium level with changing demand and constant supply

Figure 2. (b) Equilibrium level with changing supply and constant demand

As can be seen from the graph, the balancing function of price reveals its influence both through demand with unchanged supply, and through supply with unchanged demand.

With a changing supply and a constant demand, a different level of market equilibrium will also be established. Thus, an increase in supply will give a new point of lower equilibrium price with an increasing number of sales of goods. In the case of a decrease in supply, equilibrium will be established at a higher level with fewer sales of goods.

Equilibrium- the law for each competitive market, which allows you to maintain the balance of the entire economic system as a whole.

Example of calculating the equilibrium price

In the Moscow household appliances market, the supply of domestic refrigerators looked like: Q s = 15 000 4- + 2.4P, whereR- price, thousand rubles for 1 refrigerator; Q s - volume of offer, pcs. per year. The demand for these refrigerators looked like this: Q d = 35 000 - 2.9R.

The equilibrium price of domestic refrigerators can be established by balancing the supply and demand for this product (Q s = Q d ).

The theory of market equilibrium proceeds from the postulate that the market tends to an equilibrium state between supply and demand. Price is the regulator of supply and demand volumes. Thus, low prices stimulate the growth of demand volumes while reducing supply volumes. Buyers tend to buy as much as possible, and producers want to produce as little as possible. High prices, on the contrary, stimulate an increase in the volume of supply with a simultaneous decrease in demand. Thus, finding the equilibrium volumes of supply and demand, according to the theory of market equilibrium, inevitably leads to the achievement of the corresponding equilibrium price (Fig. 1.13). The market price always strives to achieve an equilibrium state through equilibrium, equal volumes of supply and demand.

Quantity

The theory of market equilibrium does not exclude deviations from the equilibrium state, explaining this by temporary deviations in the volumes of demand and supply from the initial state. In fact, the market is constantly bombarded with information that changes its silhouette and shape. At the same time, the market is not only subject to constant and discrete (periodically) incoming information, but also reacts to it in different ways. One is followed by an instant reaction of traders and investors, and the other they are waiting for confirmation.
Here it is necessary to point out that the state of market equilibrium between the volumes of supply and demand, although the market strives for it, is very rare, achievable more by chance than on purpose. Almost always, either demand exceeds supply, or the latter exceed demand. These volumes change very slowly in comparison with the transience of changes in market prices. While producers or consumers are trying to catch their own tail (think of a dog circling in one place, trying to catch its tail), market prices are already changing, moving them to new actions.
Practicing traders can find at least one more, very common case of inconsistency between the theory of market equilibrium and reality. So, many traders and investors trade in response to prices, placing stop orders for the passage of market prices of certain values. This uses very simple logic: for example, "if the market price reaches $12, then the price will most likely continue to rise, so I will buy at this price." This shows that the rise in price not only does not lead to a decrease in the volume of demand, but, on the contrary, stimulates the emergence of demand. Here it is necessary to point out that the market also trades with expectations, including expectations of the future ratio of supply and demand volumes.
However, despite the rarity of the state of market equilibrium, the desire of the market for it does exist, so the theory of market equilibrium cannot be discounted.
In fact, the ratio of supply and demand is constantly fluctuating from a deficit to a surplus (for example, the classic crisis of overproduction) and vice versa, tending to a certain equilibrium point (Fig. 1.14).

Time

It should be noted that the equilibrium point is not stationary. It changes following changes in the structure and volumes of supply and demand, which means it can move up or down along the price axis.
From a philosophical point of view, the state of balance corresponds to the absence of movement, which means that balance is death. And the financial markets can confirm this. Thus, illiquid markets (for example, the Ukrainian stock market in 2001) are often called "dead markets". Such markets are most of the time in a state of equilibrium, when price volatility is close to zero. At the same time, despite the apparent stability, changes are taking place in such markets. These changes are realized in fast and relatively short-term price transitions from one level to another. Such situations are reminiscent of gradually tightened springs, the releasing of which results in the same consequences that were observed in August 1998 in the Russian foreign exchange market. Here, the ruble exchange rate against the dollar, which has been squeezed into the currency corridor since 1995, accumulated “forces” for a very long time, generated by the discrepancy between the true exchange rate and that set by the Central Bank of Russia, and then, naturally, exploded. Moreover, such jerks, as a rule, do not end with a simple alignment and the establishment of a fair market price, but tend to the zenith. So it was in 1998 - the ruble/dollar exchange rate released to freedom quickly slipped through the "fair" mark of 15 rubles. (my rough estimates based on the calculations of purchasing power parity and the difference in interest rates in Russia and the United States) and reached 30 rubles. Such movements in market prices resemble the jerk of a previously compressed spring and are typical of overregulated markets. Think, for example, of the price spikes in gold and oil in the 1970s.
The Brazilian real, the Turkish lira and many other currencies had similar behavior. The market is always alive, the volumes of supply and demand are constantly changing, even if these changes are imperceptible.
So although equilibrium is death, it is unattainable for financial markets as long as goods and money exist - in fact, as long as the very concept of the market exists. Why? First of all, because of the mass of external (exogenous) and internal (endogenous) factors that affect the market. Among other things, internal factors include psychological factors inherent in all market participants.
Some try to refute the theory of market equilibrium, referring to the fact that movement is important for evolution, and equilibrium is contrary to this. And since evolution is one of the fundamental principles of the development of nature, there is no place for balance in our world. However, I repeat that there is an apparent balance in nature, although this is nothing more than a movement imperceptible to the ordinary eye. One has only to increase the approximation, and it becomes clear that there is a microcosm (insects, then microbes, then particles, etc.).
Another consideration in defense of the equilibrium theory is the following. Between each evolutionary leap, nature is forced to accumulate forces, i.e. come to a state of equilibrium. Without accumulation, there can be no jump, which means that without balance there can be no subsequent movement. There are often situations in the market when a sharp price movement is followed by a period of consolidation, etc.