Once equilibrium price is reached ,it will remain stable.Give the reason.Explain the situations where equilibrium condition changes.give two examples of government interventions in equilibrium market
Market equilibrium is defined as the state of rest where there is no further incentive to change and there exists a complete balance between the two opposite market forces, i.e. market demand and market supply. Herein, the price corresponding to the equilibrium is called the equilibrium price. Once the equilibrium price is reached, it remains stable. There may be two cases in which there is a deviation from equilibrium, namely, excess demand and excess supply. Excess demand is defined as the situation, where the market demand exceeds the market supply at a particular market price and excess supply is defined as a situation, where the market demand falls short of the market supply at a givenprice.When there is an excess demand in market, the competition among the buyers increase. Due to this, the buyers will tend to buy the output at a higher price which in turn will increase the market price. Thus, the price will increase until the equilibrium is restored (at demand equal to supply). Similarly, in case of excess supply, competition among the sellers increase which in turn will result in a fall in the market price. Thus, the prices will continue to fall until the equilibrium is restored. Hence, this implies that the market equilibrium is a state of rest with no further incentive to deviate from the equilibrium point.
The equilibrium condition changes under the following three situations when,
i) Market Demand changes
ii) Market Supply changes
iii) Both Market Demand and Market Supply changes
The explanation to the concerned situations is extensively covered in our study material. You can find it at the below mentioned link.
There are two situations where government intervenes in the equilibrium market.
i) Price Ceiling
ii) Price Flooring
These situations are extensively covered in our study material. You can find it at the below mentioned link.
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