By LEAH MONTEJANO
Staff Writer
Market Price Definition: the price of a commodity when sold in a given market.
Market Equilibrium
Market Equilibrium describes a situation where a good’s supply equals the good’s demand. When this happens, there is no reason for the cost to change. It is important to maintain an equilibrium price because when the equilibrium price is met it is balancing the quantity supplied and the quantity demanded. Companies strive to reach the Equilibrium price and it is a frequent goal most have in the business.
Surplus
A Surplus is the amount of a resource or item that exceeds the portion actively used by consumers. A Surplus happens when the price of a good or service is set too high, and consumers are not willing to pay that cost. This encourages sellers to lower their prices to meet the equilibrium price. Surplus impacts the price by dropping the cost until the Surplus diminishes, when the surplus is eliminated the quantity supplied will equal the quantity demanded and they will achieve the goal price.
Shortage
A shortage is a circumstance where the quantity demanded is more than the quantity supplied at the market price. If there is a shortage, there will be high levels of demand which will make sellers charge more for the goods in demand, therefore prices will rise. The higher prices will encourage sellers to supply more of that product and the rising prices will make demand decrease. There are three main causes of a shortage, they include; increase in demand (outward shift in the demand curve), decrease in supply (inward shift in supply curve), and government invention.
Price Ceilings and Floors
A price ceiling prevents a market price from rising above a certain level. When the price ceiling is set under the equilibrium price, quantity demanded will have an excess of quantity supplied and an excess in demand or shortages will be the result. A Price floor prevents the price from lowering below a certain level and is the lowest price that can be paid in a market for goods and services.