By Samantha Butterfield
Staff Writer
Market equilibrium is when consumers and firms mutually benefit from the quantity of a good or service demanded by consumers equals the quantity supplied by the firms. The market price is also ideal for both the consumers and producers. In simpler terms, market equilibrium is sort of when everything balances out. A surplus or even shortage could bring the market either closer or farther away from equilibrium. So when the market is at equilibrium, both the consumer and producer are happy with their sale/profit and so therefore the price stays the same.
The law of demand states that “the quantity purchased varies inversely with price.” The law of demand has a direct relationship with prices in the market. For example when the price of an item goes up, then there is less demand. And when the price of a product or service goes down, the demand increases. Other things that could also influence demand are people’s interests, income, and even expectations. The law of supply has a direct relationship with the change in price. But it is also determined by what consumers are interested in at the time. So when the price of a good or service increases, the quantity demanded decreases. When the price of a product decreases, there is more demand and therefore not as much quantity.
A surplus is when there is too much or extra of a good or service available. A surplus could occur for many different reasons. The first is that consumers are no longer interested in what the companies are selling (maybe they found something better) and nobody may be buying it. Another reason could be if a company sells a product, but has its prices higher than anyone would be willing to pay for them. This could cause companies to lower their prices simply because they are not able to get rid of their product fast enough.
A market shortage is when consumers are unable to get a good or service because it is being demanded in such a high volume that cannot be produced quickly enough. Therefore the price of the item will likely skyrocket, as everyone wants it. An example of this today would be something like gas. Although we still have enough gas for lots of people to get it, we are still technically in a shortage because there is a limited supply. My car holds about 10-12 gallons and my gas used to be $28 dollars and now it is upwards closer to $60 or even $70 dollars. But the three main reasons for a market shortage are an increase in demand, a decrease in supply, and/or government regulations. So it is easy for the price of something to go up in the market when there are supply issues that may cause a shortage.