Market equilibrium is 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 point in time.

In the graph, market equilibrium is illustrated by the intersection of the supply and demand curves. Curves can intersect only at one point - the point market equilibrium. This point corresponds to the equilibrium price and the equilibrium volume of production.

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

Equilibrium volume (Q e) is the quantity 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. 5. Consumer surplus and seller surplus

Buyer surplus arises due to the fact that they pay for all units of equilibrium quantity 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 price. They would save part of their income by purchasing the good at the equilibrium price.

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

0P e EQ e - actual expenses of consumers.

Buyers' surplus = 0AEQ e - 0P e EQ e, that is, P e AE is the amount that buyers win.

Seller surplus occurs when all units of equilibrium quantity Q e are sold at a single equilibrium market price, but not at supply prices.

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

0P e EQ e - actual revenue of sellers.

Sellers' surplus = 0BEQ e - 0P e EQ e, that is, P e BE is the amount that sellers win.

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

If the price on the market turns out to be higher than the equilibrium price (P 1), then a commodity surplus will arise. To realize this surplus, sellers will begin to reduce the price. As a result, the quantity demanded will increase and the quantity supplied will decrease until they become equal.

If the price on the market is lower than the equilibrium price (P 2), a commodity shortage will arise. In this case, buyers are ready to overpay for the necessary goods, i.e. the price begins to rise, and the market situation returns to the equilibrium point.

R

Surplus S

D deficiency

Rice. 6. Market equilibrium of supply and demand prices

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

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

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

The state can fix the price of some goods below the equilibrium price, thereby setting its upper limit. You cannot sell a product at a higher price.

A price “ceiling” is introduced to support low-income groups of the population or to combat inflation, but at the same time a persistent shortage of goods is established. In this case, the state must either limit demand (for example, introduce a system of distribution of goods through coupons, cards) or stimulate supply (for example, compensate manufacturers for part of the costs of producing goods).

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

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

Depending on the time there are:

Instant balance. It is impossible to increase the supply of goods in a very short period of time, so equilibrium depends only on demand.

Short-term equilibrium. An enterprise, through the use of internal capacities, can increase the volume of supply.

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

FEDERAL AGENCY FOR EDUCATION

State educational institution of higher professional education

ASTRAKHAN STATE UNIVERSITY

Department of Economic Theory

COURSE WORK

Market mechanism and market equilibrium

(in the discipline “Microeconomics”)

COMPLETED:

1st year student

Faculty of World Economics and Management

SCIENTIFIC ADVISER:

Ass. Morozova N.O.

Kazan 2010

Introduction

Chapter 1. Market equilibrium

1.1 Equilibrium price and equilibrium quantity

Existence and uniqueness of market equilibrium

Equilibrium stability

Equilibrium models according to L. Walras and A. Marshall

1.5Causes and mechanisms of shifts in market equilibrium

Web-like model

1.7 Equilibrium in the instantaneous, short and long periods

Conclusion

List of used literature

Introduction

Purpose of the work: to characterize market elements and study the mechanism for establishing market equilibrium.

In accordance with the goal, it is necessary to solve the following problems:

define the concept of market;

determine market demand and supply;

determine the equilibrium price and equilibrium quantity;

establish the causes and mechanisms of shifts in market equilibrium;

consider market equilibrium models;

consider equilibrium in instantaneous, short, and long periods.

Structure of the work: this work consists of an introduction, two chapters, a conclusion, a list of references containing 30 sources.

The first chapter is devoted to the concept of the market and its elements - market demand and supply. The second chapter is devoted to market equilibrium, its properties, and models for its establishment.

Equilibrium models are used to study the relationships between economic agents. These models are a special case of a more general class of models of interaction of economic agents. Through equilibrium models, both the equilibrium and nonequilibrium positions of the economic system are studied. In microeconomic theory, market equilibrium models have special meaning because economic agents can effectively carry out their economic activities only if they have reliable information about all prices for both the resources they consume and the benefits offered to them. Since each individual economic agent cannot have such information, the optimal way to study price-forming factors may be to assume an equilibrium position and minor changes in one specific price.

The first person to undertake the construction of a general equilibrium model was the Swiss economist Leon Marie Esprit Walras (1834-1910). L. Walras used the theory of groping to prove the achievement of balance. The predecessor of L. Walras in constructing a general equilibrium model was the representative of the French school of economists and engineers A.-N. Isnard (1749-1803). A.-N. Isnar’s main work is “Treatise on Wealth,” published in 1781.

The work of A.-N. Isnard influenced L. Walras; many similarities were revealed in the work of both, including the commonality of analytical tools up to the use by both of one of the entire set of goods as a counting good - numeraire.

In turn, the interaction of supply and demand was considered by the English economist Alfred Marshall (1842-1924), his concept of market equilibrium was called the “A. Marshall compromise”. A. Marshall introduced the concept of elasticity of demand, which characterizes the quantitative dependence of demand on three factors: marginal utility, market price and money income used for consumption. From the analysis of demand, A. Marshall moved on to the analysis of the supply of goods and the interaction between supply and demand when setting prices. He determined the dependence of the influence of supply and demand on price on the time factor. At the same time, he proceeded from the fact that in the short term the main pricing factor is demand, and in the long term - supply. Later in the 30s. The first rigorous proof of the existence of general equilibrium was carried out by the German mathematician and statistician A. Wald

This topic is still relevant today, since economists encounter the problems discussed in it quite often. Understanding market equilibrium and the market mechanism as a whole makes it possible to correctly assess the situation in a competitive market.

The next two chapters will examine in detail market equilibrium and the mechanism for establishing it.

Market equilibrium

1. The concept of market equilibrium and equilibrium price

Market equilibrium is a situation in the market when demand (D) and supply (S) are in a state of equilibrium, which is characterized by an equilibrium price (P e) and an equilibrium volume. Those. the volume of demand (Q D) is equal to the volume of supply (Q S) at a given equilibrium price (P e) (Fig. 1).

Above, supply and demand were discussed separately. Now we need to combine these two sides of the market. The interaction of supply and demand produces an equilibrium price and an equilibrium quantity or market equilibrium.

In other words, market equilibrium is a market situation in which the demand for a product is equal to its supply.

Let's combine the supply and demand lines on one graph in Fig. 2.1. It is profitable for both the buyer and the seller to make transactions only in the zone located under the demand curve, but above the supply curve. This zone demonstrates all possible exchange situations in this market. This is a market of both sellers and buyers at the same time. Any point belonging to a given space can express a purchase and sale transaction. Moreover, all points, except one, in this zone characterize non-optimal exchange conditions, that is, conditions that are more beneficial for one of the parties to the trade transaction. And only point E, which lies at the intersection of supply and demand, illustrates a situation that is maximally beneficial for both the seller and the buyer at the same time. This point E at the intersection of supply and demand is called the equilibrium point. Point P E is the price at which supply and demand are in equilibrium as a result of market competitive forces. Point Q E is the value of the commodity mass at which supply and demand are in equilibrium as a result of the action of market competitive forces.

Fig.2.1.Market equilibrium 1

Let us take a closer look at the equilibrium price and equilibrium volume.

Equilibrium price is a single price at which an equilibrium quantity of a good is sold and purchased.

Rice. 1. Market equilibrium

But the state of equilibrium in the market is unstable, because changes in market demand and market supply cause changes in market equilibrium.

If the real market price (P 1) is higher than P e, then the volume of demand (Q D) will be less than the volume of supply (Q S), i.e. there is a surplus of goods (DQ S). Excess supply always acts in the direction of lowering prices, because sellers will strive to avoid overstocking.

To avoid price changes, producers can reduce supply (S, S 1), which will lead to a reduction in volume to Q D (Fig. 1, a).

If the real market price (P 1) turns out to be lower than the equilibrium price P e, then the volume of demand (Q D) exceeds the volume of supply Q S, and a shortage of goods arises (DQ D). A shortage of a product tends to increase its price. In this situation, buyers are willing to pay a higher price for the product. Pressure from demand will continue until equilibrium is established, i.e. until the deficit becomes zero (DQ D =0).

The law of diminishing marginal utility (successive increases in the consumption of a good leads to a decrease in the utility from it) explains the negative slope of the demand curve (D). That is, each consumer, in accordance with the decreasing utility of a product, buys more of it only if the price decreases.

Using the demand curve, you can determine the consumer's gain (surplus) - this is the difference between the maximum price that a consumer can pay for a product (demand price) and the real (market) price of this product.

The demand price for a product (P D) is determined by the marginal utility of each unit of the product, and the market price of a product is determined by the interaction of demand (D) and supply (S). As a result of this interaction, the product is sold at the market price (P e) (Fig. 2).

Rice. .2. Consumer and producer surplus

Therefore, the consumer wins by buying a product cheaper than he could pay for it. This gain is equal to the area of ​​the shaded triangle P D EP e (Fig. 2).

Knowing marginal costs (MC) allows one to determine the producer's gain. The fact is that the minimum price at which a firm can sell a unit of output without loss should not be lower than marginal cost (MC) (the increase in costs associated with the production of each subsequent unit of output) (Fig. 2). Any excess of the market price of a unit of production over its MS will mean an increase in the firm's profit. Thus, the producer's gain is the amount of excess of the selling price (market price) over the marginal costs of production. The firm receives such a surplus from each unit of goods sold at a market price (P e) exceeding marginal cost(MS) of production of a given unit. Thus, by selling the volume of goods (Q e) (at different MS for each unit of production from 0 to Q E) at P E, the company will receive a gain equal to the shaded area P e EP S.

2. Equilibrium price and equilibrium quantity

The equilibrium price is one of the mechanisms for establishing market equilibrium. The equilibrium price is the price at which the quantity demanded is equal to the quantity supplied, in other words, it is the only price that meets the condition:

P E = P D = P S

At a given price on the market, the equilibrium quantity of goods offered on the market is established: Q E = Q D = Q S

The equilibrium price performs the most important functions:

informational – its value serves as a guideline for all market entities;

rationing - it normalizes the distribution of goods, giving a signal to the consumer about whether a given product is available to him and what volume of supply of goods he can count on at a given level of income. At the same time, it influences the manufacturer, showing whether he can recoup his costs or whether he should refrain from production. This normalizes the producer’s demand for resources;

stimulating - it forces the manufacturer to expand or reduce production, change technology and assortment, so that costs “fit” into the price and there is still some profit left.

To finally define the concept of market equilibrium, we need to consider its properties.

3. Existence and uniqueness of equilibrium

From the above, the following assumptions were implicitly assumed:

equilibrium exists in the market for an individual product;

equilibrium exists only for a single combination of price and volume values.

However, there are examples in which these assumptions are violated:

The volume of supply and the volume of demand are not equal to each other for any non-negative price;

There is more than one price-volume combination at which market equilibrium is achieved.

Let us consider the existence of equilibrium in the market. It is possible if there are one or more non-negative prices at which the quantities demanded and supplied are equal and non-negative. When represented graphically, this means that equilibrium will exist if the supply and demand lines have at least one common point.

Figure 2.2 shows two situations in which the supply and demand lines do not have common points.

In Fig. 2.2 a) the quantity supplied exceeds the quantity demanded at any non-negative price.

In Fig. 2.2 b) the demand price is less than the supply price 2 for any non-negative output volume; the amount of money that consumers are willing to pay for a given product is not enough to compensate for the costs of its production. The production of such a product is technologically quite possible, but economically impractical.

Fig.2.2. The quantity supplied exceeds the quantity demanded at any non-negative price a); The supply price exceeds the demand price for any non-negative volume b). 3

Let us move on to consider the question of the uniqueness of equilibrium.

In Fig. 2.3 a) the demand line has normal look, that is, a characteristic negative slope. At the same time, the supply line changes the sign of its slope as the price rises, which leads to the existence of two equilibrium positions - at points E 1 and E 2.

Figure 2.3 b) shows the case when the supply and demand curves coincide in the segment NM. Equilibrium in the market is achieved at any price in the range from P 1 to P 2 and the equilibrium volume Q E . A price change in the specified range is not sensitive enough to cause a change in the volume of demand among consumers, and a change in the volume of supply among producers.

In Fig. 2.3 c), the supply and demand curves also have a common segment: in this case, equilibrium is established at any volume in the range from Q 1 to Q 2 and the equilibrium price P E . A change in volume in this interval does not cause a change in the demand price and the supply price equal to it.

Fig.2.3. Non-uniqueness of equilibrium. a) the supply and demand lines have two common points; b) the supply and demand lines have a common segment; c) equilibrium is established at any volume in the range from Q 1 to Q 2. 4

Having determined the properties of equilibrium, it is necessary to determine whether the equilibrium is stable or subject to change.

4. Stability of balance

A stable equilibrium is achieved when the deviation of demand prices from supply prices is gradually extinguished, tending to the equilibrium price P E , and the volume of supply adapts to the volume of demand. At the equilibrium point, the demand price coincides with the supply price (P D = P S) and the quantity demanded is equal to the quantity supplied (Q D = Q S). Equilibrium can be stable and unstable, local and global. Stable equilibrium, in turn, can be absolute and relative. Let us plot time T on the abscissa axis, and price P on the ordinate axis. When deviations from the equilibrium price (for example, P 1, P 2) gradually level out at the level P E, a stable equilibrium develops in the market. Absolute equilibrium occurs in the case of establishing a single equilibrium price (Fig. 2.4 a), relative equilibrium - with small deviations from it (Fig. 2.4 b).

If equilibrium is achieved only within certain limits of price fluctuation, then we speak of local stability. But at the same time, fig. a) stability is achieved only in the range from P 2 to P 3. If equilibrium is established for any price deviations from the equilibrium price in Fig. 2.4 b), then stability is global in nature.

Fig. 2.4. Local a) and global b) stability of equilibrium 5

Analysis of market equilibrium from the point of view of its stability requires a certain understanding of the mechanism by which equilibrium is established in the market. Two major economists, L. Walras and A. Marshall, understood the operation of this mechanism differently.

5. Equilibrium models according to L. Walras and A. Marshall

There are two approaches to the study of establishing the equilibrium price: L. Walras and A. Marshall.

The main thing in L. Walras's approach is the difference in the volumes of demand and supply of rice. 2.5. If the market price P 1 > P E , then the quantity of supply is greater than the quantity of demand Q S 1 >Q D 1 , there is an excess supply in the market (at price P 1 ), the excess is equal to Q S 1 - Q D 1 . As a result of competition between sellers, the price P E decreases and the surplus disappears. If the market price P 2 > P E , then the quantity demanded is greater than the quantity supplied Q D 2 > Q S 2 , there is excess demand in the market (at price P 2 ), that is, the deficit is equal to Q D 2 - Q S 2 . as a result of buyer competition, the price rises to P E and the shortage disappears.

Enlarge Walras' theory

Fig.2.5. Market equilibrium according to L. Walras. 6

The main thing in A. Marshall's approach is the difference between prices P 1 and P 2 Fig. 2.6. A. Marshall proceeds from the fact that sellers, first of all, react to the difference between the demand price and the supply price. The larger this gap, the greater the incentive to increase (or decrease) supply. An increase (or decrease) in supply reduces this difference and thereby contributes to the achievement of an equilibrium price. According to L. Walras, buyers are active in conditions of shortage, and sellers are active in conditions of surplus of goods. According to A. Marshall's version, entrepreneurs are always the dominant force in shaping market conditions.

Fig.2.6. Market equilibrium according to A. Marshall. 7

The equilibrium price is usually lower than the maximum price expected by consumers, by the amount of consumer surplus, which is a surplus, primarily for wealthy consumers who could purchase a product above the equilibrium price P E up to the maximum P max , but purchase the product precisely at the market price Fig. 2.7 .

Graphically, consumer surplus can be depicted through the area of ​​the figure limited by the demand curve, the ordinate axis and the equilibrium price P E , that is, the area P max E P E . Consumer surplus is part of the social surplus from the existence of the market mechanism. In turn, the equilibrium price is usually higher than the minimum price that the most efficient firms could offer. Consequently, the total costs of producers are equal to the area of ​​the figure P min EQ E , and the producer surplus is the area P E EP min . This is the surplus of the most efficient firms that can offer goods to the market below the equilibrium price P E , but offer goods at a higher market price. The social surplus from the existence of the market is equal to the sum of consumer surplus and producer surplus.

Fig.2.7. Producer and consumer surplus. 8

6. Causes and mechanisms of shifts in market equilibrium

Changes in market equilibrium occur due to changes in non-price factors.

Market reaction to changes in demand D Fig. 2.8 a) ;

Suppose the quantity supplied increases. This means that the demand for this product increases. A shortage of Q E 1 Q E 2 of product Q at a price P E 1 will increase the price to P E 2 as a result, a new equilibrium will be established at point E 2.

Market reaction to changes in supply Fig. 2.8 b):

Let us assume that as a result of the use of new technologies, production costs for producers have decreased and, as a result, the supply of product Q on the market has increased. Surplus E 1 B supply of goods at Q at price P E 1 will cause the price to fall to P E 2. as a result, a new equilibrium will be established at point E 2. the size of the price change when industry demand (supply) changes depends on the magnitude of the shift of the line D (S) and the slope of the graphs D and S.

With the simultaneous movement of supply and demand. (if consumer income increases and producers' costs are reduced), perhaps the equilibrium price P E will not change, but the equilibrium sales volume will certainly increase (Fig. 2.8 c).

R
is. 2.8. R

market equilibrium a) with an increase in demand; b) with supply growth; c) with simultaneous and unidirectional changes in supply and demand. 9

Web-like model

Web-shaped model is a model depicting the trajectory of movement towards a state of equilibrium when the response of supply or demand is delayed. It describes a dynamic process: the trajectory of adjustments in prices and output as they move from one equilibrium state to another; used to describe price fluctuations in agricultural markets; on the exchange market, where supply reacts to price changes with some delay.

Let us consider a variant of a dynamic market model for one product. Let us assume that the volume of demand depends on the price level of the current period, while the volume of supply depends on the price level of the previous period:

Q i D = Q i D (P t),

Q i S = Q i S (P t-1), 10

where t is a certain period of time (t = 0,1,2,…,T). This means that producers determine in period t-1 the supply volume of the next period, assuming that prices in period t-1 remain the same in period t (P t -1 = P t).

In this case, the supply and demand graph will look like a web-shaped model.

Equilibrium in the cobweb model depends on the slope of the demand curve and

offers. Equilibrium is stable if the supply slope S is steeper than the demand curve D. The movement towards general equilibrium goes through a number of cycles. Excess supply (AB) pushes prices down (BC), which results in excess demand (CF), which pushes prices up (FG). This leads to a new excess supply (GH) and so on until equilibrium is established at point E. The fluctuations are damped. The movement may, however, take on a different direction if the angle of inclination of the curve D is steeper than the angle of inclination of the supply curve S. In this case, the fluctuations are explosive and equilibrium does not occur.

Fig.2.9. Stable (a) and unstable (c) equilibrium in a web-like model and regular oscillations (b) around it. eleven

Finally, an option is also possible when the price makes regular oscillatory movements around the equilibrium position. This is possible if the angles of inclination of the supply and demand curves are equal.

The cobweb model suggests that the angles of inclination of the demand and supply curves are essential for understanding the mechanism of market equilibrium and determining the patterns of behavior of buyers and sellers in the market.

Equilibrium in instantaneous, short and long periods

Let us consider statistical models of market equilibrium in which the time factor is not explicitly taken into account: dynamic processes in this case are like instant “photo frames”. Dynamic processes can be illustrated by the method of comparative statics, in which a shift is shown by a corresponding movement of the demand or supply line.

This shift is shown in Fig. 2.10, where the supply and demand lines have a normal (negative and positive slope, respectively) in Fig. 2.10 a), a shift in the demand line leads to an increase in the equilibrium price from P 1 to P 2 with a simultaneous increase in equilibrium volumes from Q 1 to Q 2. In Fig. 2.10 b) a shift of the supply line to the left leads to an increase in the equilibrium price while simultaneously reducing the equilibrium volume.

Fig. 2.10. Equilibrium shift. 12

Although the method of comparative statics does not explicitly take into account the time factor, its indirect inclusion becomes possible by taking into account differences in the speed of adjustment of supply to changes in demand.

To do this, when using the method of comparative statics, it is customary to distinguish between three periods. The first, in which all factors of production are considered constant, is called the instantaneous period. The other, in which one group of factors is treated as constant and the other as variable, is called short period. The third, in which all factors of production are considered as variables, is called the long period. Some economists also identify a fourth, very long period, during which not only the volume of resources used and the intensity of their use, but also the nature of the technology used can change.

In the instantaneous period, the seller is generally deprived of the opportunity to adapt the volume of supply to the volume of demand, since the amount of production resources and the intensity of their use are given. However, the fact that the seller has a fixed quantity of goods does not mean that all this quantity must necessarily be sold regardless of the price level. Much depends on the nature of the product. If the product is perishable and cannot be stored, the supply line will be strictly vertical. As can be seen from Fig. 2.11 a), in this case the equilibrium price is determined exclusively by demand, more precisely, it coincides with the demand price, while the sales volume is uniquely determined by the supply volume and does not depend on the demand function.

If the product is not perishable and can be stored, then the supply curve can be represented as consisting of two segments: one with a positive slope, and the second, represented by a vertical segment, Fig. 2.11b). At price P 0 the seller will offer for sale the entire fixed volume of goods Q K . The same will happen if the price exceeds the level P 0, for example P 1. however, at a price below P 0, for example P 2, the quantity supplied will be Q 2, while the quantity of goods in the amount of Q K - Q 2 can be maintained until a more favorable environment occurs. If storage of excess is difficult or associated with high costs that are not compensated by the expected increase in price, the corresponding amount of goods can be sold at bargain prices.

Fig.2.11 Equilibrium in the instantaneous period, a) – goods that are not subject to storage; b) – goods subject to storage. 13

Over a short period, the production capacity of an enterprise is considered unchanged, but its use, and therefore the volume of production, can change due to changes in the volume of application of variable factors. These changes, however, cannot go beyond technical production capacity.

IN short period the supply curve also consists of two segments, Fig. 2.12, the first, which has a positive slope, is limited along the x-axis by the point corresponding to the production capacity Q K . The second section of the supply curve is represented by a vertical segment, which indicates the impossibility of going beyond the limits limited by available production capacity in a short period. Up to this boundary, the equilibrium volume and price are determined by the intersection of the demand and supply curves, and beyond it, as in the instantaneous period, the price is determined by demand, while the supply volume is determined by the size of production capacity.

Fig. 2.12. Equilibrium in the short period. 14

Finally, over a long period, a manufacturer can not only vary the intensity of use of production facilities, but also change their size, and therefore the scale of production. In Fig.2.9. Three situations are presented that are possible in the long term. In the first case, when a change in the scale of production occurs at constant costs, an increase in the equilibrium volume occurs without a change in the equilibrium price. In the second, when a change in the scale of production occurs at increasing costs, an increase in the equilibrium volume is accompanied by a decrease in the equilibrium price.

Fig.2.13. Equilibrium in the long term. a) at constant costs; b) with increasing costs; c) with decreasing costs.

Figure 2.14 shows the adaptation of supply to changing demand over a long period. Here S 0 is the supply curve, and D 0 is the short-run demand curve. As you can see, supply and demand are balanced at price P 0 at the level of full use of production capacity Q K .

Let us assume that demand suddenly increased and is now represented by curve D 1, lying to the right of curve D 0. since there is no capacity reserve, the new equilibrium is achieved solely by increasing the price to P 1 while maintaining the same sales volume Q K . In the long run, the scale of production increases due to the introduction of new capacities and the supply curve shifts to position S1. the new equilibrium is achieved at a price P 2 higher than P 0 but lower than P 1 and a production volume Q 2 greater than Q K .

The difference in equilibrium situations presented in Figure 2.14 is important when assessing price levels in different markets.

Fig.2.14. Transition from short to long period. 15

The conclusion is that different dynamic models can be used to analyze the stability of market equilibrium, and these models lead to different stability conditions.

Conclusion

From the above it follows that when characterizing the market as an economic category, one should take into account specific forms of market relations, manifested in the quantitative and qualitative relationships of market elements - demand, supply, price. These main elements characterize specific forms of relationship and quantitative proportions between production and consumption.

The market mechanism has a significant potential for self-tuning, that is, the desire for an optimal state, market equilibrium. An increase in prices for some goods with a significant increase in demand for them is a fairly common phenomenon in a market economy. But it is also common for a subsequent increase in the supply of these goods. In a normally functioning economy, an increase in the price of a product establishes a balance between supply and demand only in the short term, and in a longer period it is achieved by increasing the production (supply) of the more expensive product. Increasing supply is the main way to achieve market equilibrium. Therefore, in a developed market economy, the rise in prices for goods cannot be constant, which ensures minimal inflation rates and the social orientation of the economy.

The market is remarkable in that, with any deviation from equilibrium, it tends to return to it. Both in a situation of unsatisfied demand and in a situation of excess supply, interacting with each other, bring the market to equilibrium.

List of used literature

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1 Pindyke R.S., Rubinfeld D.L. Microeconomics. M.: Delo, 2000. – 53 p.

2 the demand price is defined on the graph as the ordinate of a point on the demand line and means maximum price, which buyers agree to pay for a certain volume of goods offered. In turn, the supply price is defined on the graph as the ordinate of a point on the supply line and means the minimum price at which sellers are willing to offer a certain amount of goods.

Market mechanism and market equilibriumCoursework >> Economics

... Market equilibrium 2.1 Equilibrium price and equilibrium quantity 2.2 Existence and uniqueness market equilibrium Sustainability equilibrium Models equilibrium... shifts market equilibrium; consider models market equilibrium; consider equilibrium V...

In economic thought there is such a thing as market equilibrium. This concept characterizes the economic system, if we generally analyze the economy through the prism. If you have studied what supply and demand are, then you should certainly know what the equilibrium of a market system is. What if they ask you during the exam? It would be a shame if you didn't answer, right?

Definition of the concept

Market equilibrium is a state of the economic system in which demand is equal to supply; that is, a certain equal amount of goods produced is sold in full at the equilibrium price. The equilibrium price is the price at which buyers are able and willing to purchase this quantity of goods.

According to Adam Smith, the entire market system tends toward equilibrium. For example, a bunch of farmers produced a certain amount of cucumbers for a given town. And in the end, this quantity was not enough to satisfy the exorbitant needs of the local population. After all, it pickles cucumbers, cracks them with cheese, and prepares salads for the winter!.. In a word, they just couldn’t get enough cucumbers.

There is a situation of imbalance. As a result, farmers next year realize the lost profit and will devote large areas to cucumbers. That is, they will strive for balance.

The equilibrium price, according to Smith and then Karl Marx, should tend to the value of the commodity. Learn more about what a product is and its value. It is clear that in equilibrium there is no inflation of either demand or supply. After all, all subjects are happy. Transactions under such a system are carried out in such a way that the benefit of one inevitably means the benefit of another.

Accordingly, any movements by the state or society towards artificially increasing profits or reducing costs are NOT a priori aimed at achieving market equilibrium. So the artificial growth of the economy, which was an end in itself of the first and second presidencies of V.V. Putin, could lead to only one consequence: growth.

In fact, all the problems of the market economy that theorists wanted to solve were associated with their desire to see in its functioning the action of some common mechanisms and patterns. Until now, scientists do not really know what crises entail, what the cyclical nature of economic development entails.

Conditions of occurrence

Market equilibrium does not appear anyhow. Economist L. Walras believed that everything is interconnected: subjects, producers, volume of goods, demand, prices, supply. As a result, the market seems to be “groping” for an equilibrium state. However, Walras never revealed the mechanism of this “groping”.

Francis Edgeworth offered another explanation for the conditions for the onset of economic equilibrium. According to his position, when concluding a deal, all contracts take into account the option of re-signing it or terminating it altogether. This happens because the market is not in equilibrium. At equilibrium prices, transactions do not need to be renegotiated, and all previously concluded contracts are paid for. However, the theory of the Irish economist is divorced from life. In reality, no one knows, no one owns complete information about the market, which is why deals are renegotiated.

In later theories and concepts, already in the 20th century, the idea arises that the equilibrium of the economic system depends largely on coordination economic activity and dissemination of information. For example, the idea of ​​​​creating a seventh iPhone appeared. But no one knows about this yet: neither what functions it will have, nor what characteristics it will have.

As a result, there is a surge in expectations and, consequently, wild demand for this product. Therefore, in the first days after the start of sales, you can only buy an iPhone for no less than a hundred dollars. In the future, everyone will find out that there is nothing new in the iPhone and therefore demand decreases, as does the price. So as long as there is no global coordination of economic activity, there will be disequilibrium in the market system. Something like this.

According to modern concepts, market equilibrium is possible by coordinating the activities of the following entities:

1. producer, representing the totality of non-financial commercial organizations;
2. a bank representing a set of financial commercial organizations;
3. population representing individuals– consumers and employees;
4. the owner representing consumers and employees;
5. the merchant, as a pure intermediary between consumers, producers, exporters and importers;
6. a state whose activities may be represented by the Central Bank;
7. exporter;
8. importer.

Be that as it may, this is a sensitive topic, and to this day there is no common understanding of equilibrium in the economy. Most likely it's the same ideal type according to Max Weber, like other theoretical constructs. If you have any questions, ask in the comments 😉

Economic theory: lecture notes Dushenkina Elena Alekseevna

5. Market equilibrium

5. Market equilibrium

Supply and demand scales tell us how many goods buyers would buy and sellers would supply at different prices. Prices themselves cannot tell us at what price a purchase and sale will actually occur. However, the intersection of these two curves is very important in economics. The interaction of supply and demand will result in the establishment of an equilibrium, or market, price. The market price is precisely the price at which demand equals supply and goods or services can actually be exchanged for money.

The market price cannot fall below the supply price, since production and sales become unprofitable. The price cannot be higher than the demand price because the buyer does not have more money to buy. If the interests of the producer and buyer coincide, then market equilibrium is established.

Let's combine the supply and demand scale into one table.

Only at a price of 100 rubles there will be neither shortage nor excess, i.e. the amount of demand will coincide with the amount of supply.

Graphically, market equilibrium can be depicted as follows (Fig. 6):

Rice. 6. Market equilibrium

Point E is the equilibrium price formed at the intersection of the supply and demand curves.

Balancing price function– the ability of the competitive forces of supply and demand to set a price at a level at which decisions to sell and buy are synchronized.

The equilibrium price setting model depicted above is static.

IN real life market price cannot for a long time remain unchanged, therefore market equilibrium is characterized by a dynamic model.

Such models in the 19th century. were proposed by L. Walras and A. Marshall.

1. The essence of L. Walras' model lies in the fact that the search for market equilibrium occurs in the short term: producers reduce production, and buyers show the same level of demand. Buyers begin to compete, which leads to higher prices. The production of goods is stimulated, and shortages disappear.

2. A. Marshall model describes market equilibrium in the long run, i.e., the quantity supplied is able to respond to a high market price demand. Thus, the state of shortage of goods is analyzed. The interaction of supply and demand on the market leads to the establishment of market equilibrium, which allows us to determine the equilibrium price and equilibrium quantity of goods.

When demand or supply changes, or both, the market (equilibrium) price changes simultaneously.

The intervention of external forces (the state and monopolies can act in this capacity) leads to a disruption of the established state of economic equilibrium:

1) the state’s approval of a price “ceiling” (below the equilibrium) leads to the formation of a persistent shortage of goods or services, which the state cannot eliminate, since a price below the equilibrium does not interest producers to increase production (see Fig. 6);

2) the establishment of a price by the state (monopoly) above the equilibrium one leads to the formation of a surplus of goods (overstocking), which the state has to purchase with taxpayers’ money (Fig. 6).