What is Equilibrium Price under Perfect Competition?

What is Equilibrium Price under Perfect Competition?

Equilibrium Price is also known as a market-clearing price. It is the price that is derived by market forces of demand and supply and occurs when market demand is equal to market supply. Technically, at an equilibrium price, the price at which the buyers want to purchase the product is equal to the price at which sellers want to sell the same product. Prices in the market tend to fluctuate too much due to dynamic factors. When there is a rise in prices, it will cause a contraction in quantity demanded and an expansion in quantity supplied, causing a surplus. When there is a decline in prices, it will cause an expansion in quantity demanded and a contraction in quantity supplied, causing a shortage....

What is Equilibrium Quantity under Perfect Competition?

Equilibrium Quantity is when there are no shortages or surpluses in a product in the market. The quantity that customers/consumers want to buy at a particular price at a particular point in time is equal to the quantity that the suppliers want to sell. When there is excess supply, i.e. surplus, prices will decline, and when there is more demand, i.e. shortage, prices will rise....

Determination of Equilibrium Price and Equilibrium Quantity under Perfect Competition

Equilibrium Price and Equilibrium Quantity are determined using the demand curve and supply curve. Demand Curve shows the quantity demanded that the consumers are willing and able to buy at a particular price during a specified period. The demand curve slopes downward, showing a negative relationship between quantity demanded and price. Supply curve shows the quantity supplied that the suppliers are willing to sell at a particular price. The supply curve slopes upward showing a positive relationship between quantity supplied and price. The intersection of the demand curve and supply curve decides the equilibrium price and the equilibrium quantity. There is only one point where equilibrium price and equilibrium quantity can be achieved; i.e., the intersection of the supply curve and the demand curve....

Equilibrium Price and Equilibrium Quantity in case of Excess Demand (Shortage)

When there is more demand for the product than supply in the market, the occurred situation is said to be Excess Demand or Shortage. It generally happens when prices are lower than the equilibrium price. It causes the customers/consumers to buy more products at lower prices. Expanded demand and constant supply affect the prices and quantity in the market. Sellers and their selling quantity will be less than the buyers and their buying demands. Sellers will be willing to sell less at lower prices, and buyers will be willing to buy more. There will be unfulfilled demand which will lead to an increase in prices. As prices will rise:...

Equilibrium Price and Equilibrium Quantity in Case of Excess Supply (Surplus)

Excess supply is a market condition when the quantity supplied is greater than the demand for the commodity. It occurs at prices greater than the equilibrium price. There occur some conditions when prices in the market are higher than the equilibrium price. One common example of such a condition is Price Floor. The higher prices will lead to expansion in quantity supplied as the suppliers will want to sell more and more when prices are high. So, in the market, the quantity supplied will be more than the quantity demanded, creating a situation of Excess Supply or Surplus. Sellers and their selling quantity will be more than the buyers and their buying demands. Supplies will remain idle in the market as there will not be enough buying activities. In order to sell idle supplies, suppliers will decrease the selling price until they will be able to sell all their products. In this case, every seller will have the option to decrease their prices, since the consumers/customers will be willing to buy the supplies at lower prices. As prices will fall:...